IRS Amnesty Program: Could Mean Savings for Your Business
The IRS has a new amnesty program to convert independent contractors to employees. The Voluntary Classification Settlement Program (VCSP) allows you to prospectively reclassify independent contractors as employees.
To be eligible, you must: Have consistently treated the workers as independent contractors; have filed required 1099 forms for these workers for the previous three years; not currently be under audit by the IRS, the Department of Labor or a state government agency concerning worker classification; and, if you were previously audited concerning the classification of the workers, you will only be eligible if you complied with the results of that audit.
Upon acceptance, you will pay the IRS just over 1% of the wages paid to the reclassified workers for the past year; no penalties and no interest, and you’re protected from past IRS liabilities. If you have a weak case for contractor classification, that may be a good deal.
Employers that feel they are eligible for Section 530 relief may not want to sign up for the VCSP. Section 530 relief allows you to avoid liability for past misclassification and to continue this treatment. (Read more on
Section 530 relief)
Another significant issue can be the impact of state law. Although the IRS issues a closing agreement for the past, it’s not yet clear if the states will rule the same way. Your state could view participation in the IRS program as an admission for past classification errors.
You might also want to make sure your workers have no objection to being reclassified from independent contractors to employees. With their new employee status, some workers might consider whether they have a claim against you for past benefits, etc.
There also could be other liabilities to consider. Most employers will reclassify their workers for all purposes, not merely with the IRS. They will begin paying unemployment insurance, workers’ compensation premiums and more.
Still, this program could be a good deal for some businesses. Make sure to consult
your tax professional for additional details regarding these issues and what’s best for you.
Learn more about this IRS announcement.