Voluntary Classification Settlement Program

The IRS has a program that will enable employers to resolve any Contractor vs. Employee classification issues at a low cost. Employers must apply to and be accepted by the IRS to participate in this program. To be eligible for the program, employers must: 1) have consistently treated the workers as contractors in the past; 2) filed all required Forms 1099 for the worker for the previous three years; 3) not be currently under audit by the IRS; and 4) not be currently under audit by the DOL or a state agency concerning the classification of these workers. Once accepted into the program, employers will pay a percentage (effectively a little over one percent) of the amounts incorrectly treated as contractor payments rather than W-2 wages over the past year.

The IRS will not assess any interest and penalties and the employer will not be audited on payroll taxes related to these workers for prior years. This program also allows for a six year statute of limitations instead of the three years that normally applies to payroll taxes. If you have any questions about this program or the classification of your workers, please call our office.