The IRS's Voluntary Classification Settlement Program (VCSP) is a program recently developed by the IRS that provides an opportunity for employers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes.
Under the VCSP, an employer will pay 10 percent of the amount of employment taxes calculated under reduced rates for the compensation paid for the most recent tax year to the workers being reclassified under the VCSP. In addition, the employer will not be liable for any interest and penalties on the payment under the VCSP, and will not be audited for employment tax purposes for prior years with respect to the worker classification of the workers.
As stated in the program announcement; whether a worker is performing services as an employee or as an independent contractor depends upon the facts and circumstances and is generally determined under the common law test. In some factual situations, the determination of the proper worker classification status under the common law may not be clear. In order to facilitate voluntary resolution of worker classification issues and achieve the resulting benefits of increased tax compliance and certainty for taxpayers, workers and the government, the IRS has determined that it would be beneficial to provide taxpayers with a program that allows for voluntary reclassification of workers as employees outside of the examination context and without the need to go through normal administrative correction procedures applicable to employment taxes.
Click here to apply for the VCSP
Click here for FAQ's about the VCSP
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