The Internal Revenue Service said last week that it was expanding its Voluntary Classification Settlement Program (VCSP). The reasoning for this expansion is to give more businesses the opportunity to reclassify workers as employees, as opposed to independent contractors, for future tax periods, offering them relief from their past payroll tax obligations.
The IRS is modifying several eligibility requirements, making it possible for many more interested employers, especially larger ones, to apply for the program. Applying for this program gives a partial relief from federal payroll taxes for eligible employers who are treating their workers or a class or group of workers as independent contractors or other nonemployees and now want to treat them as employees.
To be eligible for the VCSP, an employer must currently be treating the workers as nonemployees; consistently have treated the workers in the past as nonemployees, including having filed any required Forms 1099; and not currently be under audit on payroll tax issues by the IRS. In addition, the employer cannot currently be under audit by the Department of Labor or a state agency concerning the classification of these workers or contesting the classification of the workers in court. Normally, employers are barred from the VCSP if they failed to file required Forms 1099 with respect to workers they are seeking to reclassify for the past three years. However, for the next few months, until June 30, 2013, the IRS is waiving this eligibility requirement.
If you have questions on how to navigate this program, please e-mail Michael E. McDevitt, CPA, or Greg L. Gandy, CPA.