The IRS has announced the Voluntary Classification Settlement Program (VCSP) which will allow employers to voluntarily reclassify as employees workers previously classified as independent contractors. An employer can reclassify all of its workers as employees or only certain subsets of workers as employees.
An employer is eligible for the program if the employer:
- Has consistently treated the workers as independent contractors;
- Has filed all required Forms 1099 for the workers for the previous three years;
- Is not currently under audit by the IRS, U.S. Department of Labor, Maryland Department of Labor Licensing and Regulation or other such state agency; however, an employer who was previously audited by such an agency is eligible if the employer complied with the results of the previous audit.
In return for voluntarily reclassifying its workers, the IRS will cap the employer’s employment tax liability at 10 percent of the employment tax liability that would have been due on compensation paid to the workers, but the employer will not be liable for any interest and penalties on the liability; and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years.
To participate in the VCSP an employer must agree to extend the 3-year period of limitations on assessment of employment taxes for 3 additional years, for periods beginning in the first, second and third calendar years beginning after the date on which the employer has agreed under the VCSP to begin treating the workers as employees.
