Wyatt Employment Law Report

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IRS Introduces New Worker Classification Program

By James A. Nitsche

The Internal Revenue Service has launched a new program that provides partial relief from federal employment taxes for eligible employers that agree to treat workers as employees prospectively.  The program, referred to as the Voluntary Classification Settlement Program (“VSCP”), is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers, or a class or group of workers, as nonemployees or independent contractors and now wish to treat such workers as employees.

To be eligible, an employee must:

Consistently have treated the workers in the past as nonemployees;

Have filed all required Forms 1099 for the workers for the last three years; and

Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of such workers.

To apply to participate in the VSCP, an employer files Form 8952, Application for Voluntary Classification Settlement Program, at least sixty days before the employer wishes to begin treating the workers as employees.

An employer who is accepted into the VCSP  will be required to pay an amount equal to ten percent (10%) of the employment tax due on compensation paid to the worker for the most recent tax year; will not be liable for any penalties or interest; and will not be subject to an employment tax audit with respect to the classification of the workers for prior years.