Because of the large number of independent contractors working today, misclassification of employees for the purpose of payroll taxes is a significant problem for employers.
Voluntary Classifications Settlement Program
In an attempt to address these misclassifications for employers, the IRS has created the Voluntary Classification Settlement Program (VCSP). This program is designed to increase tax compliance and reduce burden for employers. Its goal is to classify workers properly while collecting unpaid payroll taxes for employees improperly classified as independent contractors.
According to the IRS, the program allows employers, “the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.” The IRS also state that “the taxpayer will extend the period of limitations on the assessment of employment taxes for three years.” Voluntary participation in the program removes the burden of interest and penalties that would be assessed if the misclassification were discovered through an IRS audit.
Are You Misclassifying Workers?
The type of factors that can determine whether a worker is an employee or independent contractor might include the following:
- The right to control the means and manner of performance
- The mode of payment (through payroll or AP)
- The furnishing of materials or tools
- The control of the premises where the work is done
- The right of the individual to decide whether to perform the job
No one factor stands alone in making this determination. This is why there continue to be so many questions related to this issue.
Applying for VCSP
To be eligible to participate in the program, employers must have consistently treated the workers in the past as nonemployees; have filed all required Forms 1099 for the workers for the previous three years; and not be under audit by the IRS, the Labor Department, or a state agency concerning the classification of the workers.
If you are interested in learning more about this or other payroll issues, please contact Tiffanie Roppolo, LaPorte Accounting Services, at [email protected].
Before applying for this program, taxpayers should contact their tax advisor to discuss the program further.