IRS Updates Voluntary Worker Classification Settlement Program

IRS Updates Voluntary Worker Classification Settlement Program

The Internal Revenue Service has been cracking down on businesses that misclassify employees as independent contractors. In an effort to urge employers to come forth with this tax law violation without facing heavy penalties, the federal agency has expanded its Voluntary Worker Classification Settlement Program.

The expansion is designed to allow more companies to take advantage of the program by loosening many of its restrictions and qualifying rules. For example, employers currently under an IRS audit, other than an employment tax audit, can now qualify for the VCSP. Additionally, employers accepted into the program will no longer face the mandatory a six-year statute of limitations, compared to the three-year limit that typically applies to payroll taxes, according to Business Finance Magazine.

The IRS is also waiving the requirement mandating that employers file Forms 1099 for the workers they would like to re-classify as employees until June 30, 2013. To date, nearly 1,000 employers have applied for the VCSP, according to Accounting Today.

Under the VCSP, employers who come forward to reclassify contractors as employees may gain relief from their past payroll tax obligations. However, failing to enter the program and being discovered for incorrectly labeling employees can lead to heavy tax penalties and lost income while the IRS investigates and reputational damage.