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January 15, 2015


Voluntary reclassfication of workers: tweaks to the IRS program

Employers face difficult decisions regarding the hiring and classification of workers. Having to pay employment taxes for employees is only one of many factors involved in these decisions. Other factors include employee preferences (some workers actually prefer the flexibility of contractor status) and the complicated nature of the distinction between employees and contractors.

The IRS has made things even more difficult for employers through classification audits that look to detect instances of worker misclassification. The Department of Labor and state government agencies have also engaged in such audits.

But in recent years, the IRS has also tried to cut employers some slack when it comes to payroll tax compliance. The IRS has done this through an initiative called the Voluntary Classification Settlement Program (VCSP). In this post, we will inform you about some tweask the IRS is making to the program.

The IRS began the VCSP in 2011. It gives employers who may have misclassified employees as contractors a chance to resolve their lingering payroll tax compliance issues.

Last fall, the Treasury Inspector General for Tax Administration (TIGTA) issued a report on the status of the reclassification program. TIGTA concluded that the IRS has not been requiring employers to submit sufficiently detailed information when applying for the VCSP program.

In particular, the application for VCSP has not included the names or Social Security numbers of the workers involved in the reclassification. According to TIGTA, the absence of this information undercuts the ability of the IRS to determine accurately the amount of employment taxes that an employer must pay to come into full compliance.

And so the IRS will be tweaking the VCSP to respond to TIGTA’s concerns.

If you are concerned about the IRS reclassifying your workers, and the tax penalties and other consequences that flow from that, it makes sense to consider applying for the VCSP. The form for applying to participate is Form 8952. A tax lawyer familiar with reclassification issues can guide you through this process.

Source:, “Voluntary Classification Settlement Program”

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