IRS Launches Worker Classification Compliance Program
October 5, 2011
Colleges and universities seeking to resolve past worker classification issues and get squarely into compliance may now participate in a new IRS voluntary compliance program. Rather than risking assessments that might be made in the course of an audit, under the new IRS voluntary settlement program, eligible institutions can willingly approach the Service to resolve past classification errors.
The determination of whether a worker is performing services as an independent contractor or an employee can be a perennial area of confusion for employers. Worker classification is usually determined based on a set of factors focusing on whether the employer directs and controls the individual about how to perform the services, which can often be unclear in the college and university workplace.
In an effort to enhance compliance in this area and to encourage voluntary resolution of worker classification issues, the IRS has provided a program that allows workers to be reclassified as employees (outside an audit context) and streamlines the administrative corrective procedures related to payment of employment taxes.
Who is Eligible to Participate? The new compliance program is available for employers interested in changing the classification of workers (or a class of workers) currently being treated as independent contractors to prospectively treat them as employees.
To be eligible for the Voluntary Classification Settlement Program (VCSP), an employer must:
- consistently have treated the workers as nonemployees in the past;
- have filed all required Forms 1099 for those workers for the previous three years; and
- not currently be under audit by the IRS, Department of Labor, or a state agency that relates to the classification of those workers.
How does VCSP Impact the Employer? An employer participating in the program will agree to prospectively treat the class of workers as employees. Employers participating in the VCSP will:
- pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year;
- not be liable for any interest and penalties on the liability; and
- not be subject to an employment tax audit with respect to the classification of those workers for prior years.
Details about how to apply for the VCSP are included in Announcement 2011-64.
Director, Tax Policy
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