Payroll taxes: An “amnesty” program for employers

Employers that have misclassified workers as independent contractors can benefit under a new IRS initiative announced on September 21st. The program, known as the Voluntary Classification Settlement Program or VCSP, provides an employer with the opportunity to correct worker classification problems with only limited liability for past employment taxes.

Under the program, a qualified employer can reclassify independent contractors for future tax periods; the program has the following benefits:

  • participating employers will only pay ten percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, which will be determined under the reduced rates of section 3509 of the Internal Revenue Code;
  • participating employers will not be liable for any interest and penalties on the liability; and
  • participating employers will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years.

Participating employers must also agree to extend the period for assessment of employment taxes for the next three tax years, so that additional taxes in subsequent years may be assessed within six years rather than three.

Not all employers will qualify. The requirements are:

  • the employer consistently treated the workers as nonemployees, and must have filed all required 1099s for the previous three years.
  • the employer cannot be under audit by the IRS or  under audit concerning the classification of the workers by the Department of Labor or a state government agency.
  • if the employer was previously audited by the IRS or the Department of Labor concerning the classification of the workers it has complied with the results of that audit.

For employers that meet the requirements the program is potentially attractive as it affords an opportunity to resolve classification issues with limited liability. Those who qualify will have to apply to the IRS to participate. For more information, the IRS release is at the link. http://www.irs.gov/newsroom/article/0,,id=246203,00.html?portlet=7

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