Believe it or not, some businesses have gone to great lengths to conduct business without employees, assuming that if you call a worker an “independent contractor” and you have the worker sign an Independent Contractor Agreement, that it’s all OK. It isn’t. As the author of Little Orphant Annie and The Raggedy Man, James Whitcomb Riley, is credited as saying, “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.”
If you tell a worker when and where to work, no matter what you call that worker, unless the situation fits specific exceptions, the Internal Revenue Service will call that worker an employee and it will want the required payroll taxes and withholding. If you happen to be one of those who has in the past called the duck something other than what it is, there is hope.
Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program allows many businesses, tax-exempt organizations, and government entities that currently treat their workers, or a class or group of workers, as non-employees or independent contractors, to prospectively reclassify workers as employees under generous settlement terms. As the title clearly points out, participation in this program is voluntary, but by participating you will escape the fines and penalties that would otherwise be assessed if the Internal Revenue Service finds it on their own and forces you to do it.
Who Can Participate?
In order to participate, the taxpayer must meet the following requirements:
- They must have consistently treated the workers in the past as non-employees;
- They must have filed all required 1099 forms for the workers for the previous three years;
- They must not be currently under audit for employment taxes by IRS; and
- They must not be currently under audit by the federal Department of Labor or a state agency with respect to the classification of these workers.
What is Required?
Interested taxpayers apply for participation in the program by filing Form 8952, Application for Voluntary Classification Settlement Program. Taxpayers accepted into the program will pay an amount effectively equaling just over 1% of the wages paid to the reclassified workers for the past year.
Why Not Wait for the IRS to Find It?
Taxpayers who are accepted into the program are basically given what amounts to amnesty for their past deeds. Those accepted will not be audited for prior years on payroll taxes related to the workers they voluntarily reclassify.
Now is a Good Time to Take a Good Look at How You Classify your Workers
The Affordable Care Act, common known as “Obama Care”, adds additional provisions on employers starting next year. The Internal Revenue Service will be looking for taxpayers trying to get out of these provisions, so classification of workers as independent contractors will be under the microscope like never before. If you’ve got anything to hide, now is the time to voluntarily give yourself up. It will cost you a lot less than it will if the IRS discovers it on their own.
We Can Help
Wallace Associates Group is here to help you ensure your worker classifications are correct and we can help you fix any past problems you might have.