IRS Changes Up Worker Misclassification Program Rules
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IRS Relaxes Worker Misclassification Program Rules

The Internal Revenue Service has decided to expand their worker classification forgiveness program to include a larger group of business owners.

Now, employers under an IRS audit can also qualify, and there will no longer be a six-year statute of limitations for employers accepted to the program. However, employers under an employment tax audit are still excluded from the program.

Also, the IRS is offering temporary relief to employers who would like to reclassify their workers as employees but did not file Form 1099 for those workers for the past three years. These employers have until June 30, 2013, to apply for the program.

So far, nearly 1,000 employers have applied for the Voluntary Classification Settlement Program (VCSP) since it started in 2011.  After employers are accepted and their workers are reclassified as employees, employers end up owing the IRS approximately 10 percent of employment taxes that would have been due, or roughly 1 percent of the total amount paid to the workers in the past year. Employers in the program do not pay interest or penalties, and will not be audited for payroll taxes that should have been due in prior years. However, if they also failed to file the Form 1099 completely, they will owe slightly more wages plus penalties, and will still need to file Form 1099 for workers they hope to reclassify.

To be eligible for the program, employers must:

  • Currently be considering the workers as nonemployees
  • Have consistently treated the workers as nonemployees in the past
  • Not be under audit regarding payroll tax issues
  • Not be under a Dept. of Labor or state agency audit regarding the classification of the workers, or challenging the worker classification in court.

For more information, visit the Internal Revenue Service website.

Want to know more about worker misclassification?

The free resource from Patriot Software spells out the IRS rules for determining contractor or employee status, plus audit triggers and the misclassification crackdown.

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Independent Contractor vs. Employee Classification Whitepaper

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