Do you own or manage a business that utilizes independent contractors?
– by Jennifer Clingan, CPA, Principal
If you are concerned that the individuals you are treating as individual contractors might actually be employees, then the Voluntary Classification Settlement Program (VCSP) might be right for you.
What is the Voluntary Classification Settlement Program (VCSP)?
The VCSP is an Internal Revenue Service program that allows taxpayers to voluntarily reclassify their workers from independent contractors to employees without penalties, interest, or threat of worker classification audit, while also enjoying a greatly reduced payroll tax liability for the most recent tax year.
Who is eligible?
In order to be eligible, a taxpayer cannot currently be under an employment tax audit by IRS, the Department of Labor, nor a state government agency. Additionally, the taxpayer must have consistently treated the workers to be reclassified as independent contractors or other nonemployees, including having filed all required 1099s for the previous three years for those workers. Finally, if the taxpayer has been previously audited by the Department of Labor concerning the classification of the workers, the taxpayer is only eligible for VCSP if the taxpayer complied with the results of the audit and is not currently contesting the classification in court.
What are the benefits of the VCSP?
A taxpayer participating in the VCSP agrees to treat the class or classes of workers as employees for future tax periods. In exchange the taxpayer will:
- Pay only 10% of the employment tax liability that would have been due on compensation paid to the reclassified workers for the most recent tax year;
- Not be liable for any penalties and interest on the amount; and
- Not be subject to an employment tax audit with respect to the classification of the workers being reclassified under the VCSP for prior years.
What should you do?
If you believe the VCSP might be the right move for you, please give us a call at 301-662-9200 or contact the LSWG representative with whom you usually work. We will be happy to assist you in deciding whether the VCSP is a good fit for you and assist you in navigating the path to worker reclassification.