NEWS

Voluntary Classification Settlement Program: Come Clean without Penalty

New program lets successful applicants reclassify workers without interest or penalties. If you have workers that were not treated as employees in past years and should have been, read on.

The IRS has launched a new voluntary compliance program that allows employers to prospectively reclassify, as employees, those workers that may have erroneously been treated as independent contractors. With generous settlement terms, the program includes audit relief for previous years, and is open to businesses, tax-exempt organizations, and government entities.

To be eligible, an applicant must:

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

Employers accepted into the program:

• Will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year
• Will incur no interest or penalties 
• Will not be audited on payroll taxes related to these workers for prior years 
• Will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes

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. 

Ramifications for your retirement plan?

We suggest that before you apply for the program, that you consider the potential impact on your retirement plan(s).

Generally, voluntarily changing worker classifications should not have an adverse impact on a qualified retirement plan. Worker classification may be treated differently under some plans and some plan documents. Please review your retirement plan documents (with a qualified professional)  before you make any submission under the VCSP.

Does it make sense for you? Circumstances vary. We recommend that interested employers review eligibility under the program with their tax advisor (or us) before applying for the program.

Need more information?

The IRS has answers to some frequently asked questions about the program (FAQs) on their website. For information more specific to your particular circumstances, please contact Lee Chick or your BerryDunn tax advisor.