Lots of businesses mistakenly misclassify people who work for them as non-employees and neglect to pay employee or employer Social Security and Medicare taxes -- called payroll taxes -- for them. When the IRS or another government agency finds out, the business is liable for all back taxes, plus interest and severe penalties.
Fortunately, the Internal Revenue Service has a program for wayward businesses called the Voluntary Classification Settlement Program, which enables employers to reclassify their workers as employees and get partial amnesty for the past payroll tax payments they have missed.
Employers accepted into the program will generally pay an amount equal to about one percent of the wages paid to the reclassified workers for the past year.
The employer pays no interest and the IRS agrees not to audit payroll taxes related to these workers for prior years.
To be eligible for the VCSP, an employer must currently be treating the workers as nonemployees; consistently have treated the workers in the past as nonemployees, including having filed 1099 forms for them; and not currently be under audit for payroll taxes by the IRS, the Department of Labor or any state agency.
Businesses, tax-exempt organizations and government entities may qualify.
The IRS recently expanded its eligibility requirements, thus making it possible for more employers, especially larger ones, to apply for the program. Of special interest to some businesses will be a temporary IRS offer to waive the requirement that the businesses must have filed any required 1099 forms for the past three years.
Thus far, nearly 1,000 employers have applied for the VCSP. This special exemption ends on June 30 of this year.
-- Herb Wolfson, Wittlin, Simon & Newman, firstname.lastname@example.org
Business workshop is a weekly feature from local experts offering tidbits on matters affecting business. To contribute, contact Business Editor Brian Hyslop at email@example.com.