IRS Voluntary Worker Classification Settlement Program

The IRS launched a program that will enable employers to resolve past worker classification issues by voluntarily reclassifying their workers and making a minimal payment covering past payroll tax obligations, rather than waiting for an IRS audit.  This program is part of the “Fresh Start” initiative by the IRS to help taxpayers address their tax responsibilities.

Under the Voluntary Classification Settlement Program (VCSP), eligible employers can obtain relief from past federal payroll taxes if they prospectively treat workers as employees. The VCSP is available to businesses, tax-exempt organizations and government entities that erroneously treated workers as non-employees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an employer must:

  • Consistently have treated the workers in the past as non-employees,
  • Have filed all required 1099 Forms for the workers for the previous three years,
  • Not currently be under audit by the IRS, and
  • Not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers.

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the VCSP program will pay an amount equaling just over 1% of the wages paid to the reclassified workers for the past year, with no interest or penalties due. Employers will not be audited on payroll taxes related to these workers for prior years. For the first three years under the program, employers will be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

IRS definition of Independent Contractor and Employee

For full details from the IRS about the VCSP...