Voluntary Workers Classification

Classifying workers as employees or independent contractors has a significant impact on a business's operations and related tax obligations. The IRS has recently developed a program designed to help employers resolve past worker classification issues and to provide certainty under the tax law. The Voluntary Classification Settlement Program (VCSP) gives employers an opportunity to correct past classifications. The lawyers at Kundra & Associates can advise on the impact to your business.

If you know or believe that you have been improperly classifying workers as independent contractors, it is important to seek legal advice immediately. Preemptively communicating with the IRS puts you in a better negotiating posture. Contact our Maryland business tax attorneys online or call 301-637-8130 to schedule a meeting to discuss your situation.

IRS Reclassification Can Result In Serious Penalties

IRS reclassification happens when persons were claimed as independent contractors and are recategorized by the IRS as W-2 employees. This typically happens following an audit or an employee complaint. The potential fines, penalties, back taxes and personal liability for business taxes are great. However, the most severe penalties may be avoided under the VCSP.

Voluntary Classification Settlement Program Eligibility

Businesses, tax-exempt organizations and government entities who are presently improperly classifying workers as independent contractors may be eligible to participate in the VCSP. Employers are granted the opportunity to achieve compliance by making a minimal payment to cover past payroll tax obligations, rather than waiting for an IRS audit. It also allows business owners to get a fresh start in regard to their tax obligations.

In order to meet the eligibility requirements, an employer must have:

  • Consistently treated workers in the past as nonemployees
  • Filed all required 1099 forms for the workers in question for the previous three years
  • Not currently be under audit by the IRS, Department of Labor, or a state agency concerning worker classification
  • File Form 8952 (VCSP application) at least 60 days before treating workers as employees

The lawyers at Kundra & Associates can help determine your eligibility and whether application into the program will be in your best interests.

Voluntary Classification Settlement Program Effects

Participation in the VCSP means that an employer agrees to treat his or her workers as employees for future tax periods. In addition, the employer will be required to pay a penalty of 10 percent of their employment tax liability in regard to the misclassified workers for the most recent tax year.

The benefits of enrolling in the VCSP and paying the required penalty mean that the employer will not be subject to an employment tax audit concerning worker classification in prior years. However, the employer must agree to extend the statute of limitations on assessment of employment taxes from three to six years. Our Maryland tax attorneys will thoroughly review your case and let you know if this program is right for you.

Call For A Consultation With A Maryland Payroll Tax Relief Lawyer

If you are concerned about the classification of workers and its potential impact on your business's tax liabilities, speak with us. Contact our Washington, D.C., employment tax attorneys online or call 301-637-8130 to schedule an initial consultation to discuss your situation.