Written by: Michael P. Riley, CPA
Worker classification cases have been a bone of contention for the IRS for many decades and still are. Businesses that hire workers as independent contractors save money on federal and state employment taxes. Determining whether a worker should be treated as an employee or as an independent contractor depends upon a “facts-and-circumstances” test revolving around a common-law test to whether the service recipient has the right to DIRECT AND CONTROL how the worker performs the services provided.
In September of 2011, the IRS issued Announcement 2011-64 establishing a new voluntary classification program (VCSP). This program will provide partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees.
Under the VCSP, taxpayers may voluntarily reclassify workers as employees for federal income tax purposes. To become eligible for the VCSP the taxpayer must:
- Have filed all required Form 1099’s for the workers for the past three years.
- Not currently be under audit by the IRS, the DOL or a state agency concerning worker classification issues.
If the taxpayer or entity is interested in applying for the VCSP, the taxpayer should complete Form 8952 at least sixty (60) days before it wants to start treating the workers as employees. Taxpayers accepted into the VCSP will pay an amount that equates to 10% of the employment tax liability due on compensation paid to the reclassified workers for the past year.
In addition, in September of 2011, the Department of Labor and Hour Division will now share information or data with the IRS related to DOL investigations involving employment tax compliance. In return, the IRS will evaluate these referrals provided by the DOL and share that information with State and Local Taxing agencies.
For more information regarding worker classification issues please contact one of our professionals at Robert F Murray and Company.