Thursday, December 15, 2011

IRS Offers Amnesty Program to Reclassify 1099 Contractors as Employees

IRS Voluntary Settlement Program: A new Voluntary Classification Settlement Program (VCSP) allows taxpayers to reclassify workers as employees for future tax periods with limited federal employment tax liability for the past nonemployee treatment. To be eligible, the taxpayer must (1) have consistently treated the workers in the past as nonemployees; (2) have filed all required Form 1099's for the workers for the previous three years; and (3) not be under audit by the IRS, the Dept. of Labor, or a state agency. [For more on the VCSP, see NTA-783 (10/4/11).] The IRS has posted a series of FAQswhich clarify that participating taxpayers will pay 10% of the employment taxes, calculated under the reduced rates of IRC Sec. 3509(a) , for the compensation paid to the workers being reclassified during the most recent tax year. But, they will not be liable for interest or penalties, and the IRS will not share information about them with other agencies.