WASHINGTON – The Internal Revenue Service has launched a program that will enable many employers—including coin laundry owners—to resolve past worker classification issues and achieve certainty under the tax law at a low cost by voluntarily reclassifying their workers.
This new program will allow employers the opportunity to get into compliance by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit.
“This settlement program provides certainty and relief to employers in an important area,” says 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.”
The new Voluntary Classification Settlement Program (VCSP) is designed to increase tax compliance and reduce burden for employers by providing greater certainty for employers, workers and the government. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees.
The VCSP is available to many businesses that erroneously treat their workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.
To be eligible, an applicant must:
- Consistently have treated the workers in the past as nonemployees
- Have filed all required Forms 1099 for the workers for the previous three years
- Not currently be under audit by the IRS
- Not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers
Employers 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. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.