Last
year, the Internal Revenue Service ("IRS") announced a settlement program for employers with misclassified
workers: the Voluntary Classification Settlement Program (“VCSP”). Under VCSP, employers can get a reduction in
their federal employment tax liability (that would have been assessed based on
past nonemployment treatment of workers) by agreeing to properly classify their workers
for future tax periods. This program encourages employers to treat these workers correctly going forward by limiting exposure to penalties for prior misclassification. In December 2012, the
IRS expanded this program so that more employers will be eligible to participate. Read the IRS announcement here.
To be
eligible to participate in VCSP, employers must not be under current employment tax audit by the IRS or
current audit of worker classification by the Department of Labor or any state
government. A prior audit will not disqualify an employer that complied with the
results of the prior audit. But here’s
the good news for employers: the IRS announced that the program will be
available through June 30, 2013 for taxpayers who are ineligible under the
general criteria because they did not provide the required Forms 1099 to the
affected workers for the prior three years.
Bottom
Line: Employers who haven't provided 1099s to your workers, still might be eligible to participate in VCSP until June 13, 2013. Enforcement activity and audits
will continue to be a priority for the Department of Labor and the IRS. Fair Labor Standards Act (FLSA) litigation has also
proven to be a lucrative area for plaintiff/employee attorneys and class action attorneys.
Audits and lawsuits can be costly for employers. Employers should take special care to insure
that their workforce is properly classified and take advantage of this program
if eligible.
Not
sure if your workers are classified correctly? Not sure if you're eligible to participate in VCSP? Contact me or visit my website.
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