IRS Updates: The Voluntary Classification Settlement Program

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To solve a tax problem, the Internal Revenue Service has released new information and updates to the Voluntary Classification Settlement Program so that businesses, tax exempt organization or government entities can now participate, and these organizations can do so even if they have IRS tax problems for a small period.

The Voluntary Classification Settlement Program, or VCSP, has been expanded by the IRS. The VCSP is a voluntary program that allows taxpayers to reclassify workers as employees. The program applies to taxpayers who currently treat their workers as independent contractors or nonemployees, but want to prospectively treat the workers as employees. This is done so that taxpayers can receive partial relief from federal employment taxes in future tax periods. The expansion will now allow more taxpayers to be able to reclassify and take advantage of this tax saving program.

In order to do this, the IRS has modified eligibility requirements. It is now possible for more employers to apply for the program, by opening it up to businesses, tax-exempt organizations, and government entities.

The IRS has also updated the program so that employers are now subject to the standardpayroll tax statute. Previously, employers in the VCSP were subject to a six year statute of limitations. Now, as a new permanent modification to the program, they will be subject to the standard three year statute that applies to payroll taxes for this tax problem.

According to the tax code, employers are not allowed into the VCSP if they have IRS tax problems, such as they failed to file Forms 1099 for the past three years for their workers. However, the IRS is making an exception and until June 20, 2013, they are waiving this particular eligibility requirement.

Once employers are accepted into the program, they will pay an amount slightly over one percent of the wages paid to the reclassified workers from the previous year. There will be no interest or penalties, and the employers will not face a tax audit on any payroll tax manners related to the workers turned employees for previous tax years. There is a temporary relief program available for employers who failed to file Forms 1099. These employers will pay slightly more, have monetary penalties, and will need to file all unfiled Forms 1099 for workers they wish to reclassify. There can be confusion in filing, and consulting with a tax attorney about your tax problems can help your business transition with reclassified workers.

Employers interested in this program should apply for VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days prior to when they want to treat the workers as employees.

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