Misclassification Issues? This Could Help.


It’s possible you may have missed this announcement in the shuffle around the holidays. For those of you who employ independent contractors, though, it’s potentially a biggie.

First, a little background…

Back in September of 2011, the IRS launched a Voluntary Compliance Settlement Program (VCSP) designed to help employers with misclassified workers come into compliance. Under the terms of the VCSP, employers who had misclassified employees as contractors could pay reduced amounts to settle past due payroll taxes and avoid penalties and interest on the previously unpaid payroll taxes related to the reclassified workers. In addition, employers would not be subject to compliance audits covering the previous classification of those workers reclassified under the terms of the VCSP.

Which is all pretty cool, right? Only thing was, there were some restrictions on who was eligible to participate. Employers must have:

  • Consistently treated the workers as non-employees.
  • Filed all required 1099s for the workers for at least the previous three years.
  • Not currently be under audit by the IRS, the DOL or any state agency regarding the classification of these workers.

So now what’s the big announcement?

Well, actually, there were two announcements:

  • In Announcement 2012-45, the IRS clarified some of the restrictions on participation. They now permit employers who are under audit by the IRS to participate, as long as it’s not an employment tax audit.
  • In Announcement 2012-46, the IRS announced a “temporary expansion of eligibility” for the program. Through June 30, 2013 employers can participate even if they have not filed all the required 1099s for the affected workers. This could be really beneficial for some organizations!

If you think this might be something your business could benefit from, check out the frequently asked questions on the IRS website and consult with your employment law or tax advisor.

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