Posted on September 23, 2011

Voluntary Classification Settlement Program (VCSP) offers Payroll Tax Amnesty

The Internal Revenue Service has recently released a new program, the Voluntary Classification Settlement Program (VCSP), that will aid employers in resolving past worker classification issues. This program incentivizes employers to voluntarily reclassify employees who had previously been wrongly classified as nonemployees or independent contractors.

A taxpayer who participates in the VCSP agrees to treat the class or classes of workers as employees for future tax periods for employment tax purposes. The taxpayer will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years. The taxpayer will pay 10% of the employment tax liability that may have been due on the compensation paid to the workers, calculated at the reduced rates of IRC section 3509, for the most recent year, with no liability for any interest or penalties. In addition, the taxpayer will extend the period of limitations on the assessment of employment taxes for three years for the first, second and third calendar years beginning after the date the taxpayer has agreed under the VCSP closing agreement to begin treating the class or classes of workers as employees.

Visit VCSP FAQs for more information on the qualifications needed for the program.

If you have questions regarding your employees, contact your Paycor payroll specialist.