New Relief From IRS For Improper Worker Classifications

The IRS announced today that it would allow employers who have improperly classified workers to reclassify them as employees and make a minimal payment for past due unpaid taxes. Employers who voluntarily join and are accepted into the program would get a fresh start from the IRS with no further audit, penalty, or other IRS concerns related to the improperly classified workers. Many employers face the possibility of substantial federal payroll tax obligations for workers who should have been classified as employees but were treated instead as nonemployees or independent contractors. “This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

To be eligible, the employer must:

  • consistently have treated the workers in the past as nonemployees
  • have filed all required Forms 1099 for the employees for the previous three years
  • not currently be under audit by the IRS or any other agency concerning the classification of these workers.

To apply for the relief, you must file IRS Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before you want to reclassify your workers as employees.

The amount the employer will be required to pay is approximately 1% of the wages paid to the reclassified workers for the past year. No other interest or penalties will be due and no further audits for those workers will occur. Employers accepted into the program will be subject to a 6-year statute of limitations, rather than the usual 3 years that applies to payroll taxes.

For more information, see the IRS website at www.irs.gov.