My business has been issuing 1099s to workers who are really employees. How should I correct this?
Once you realize that you have misclassified workers you thought were independent contractors, you should take the following actions assuming you are not under audit:
Voluntary Classification Settlement Program (VCSP) The VCSP provides an opportunity for taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. The VCSP allows eligible taxpayers to obtain relief similar to that available through the Classification Settlement Program (CSP) for taxpayers under examination. The VCSP is an optional program that provides taxpayers not under an employment tax examination with an opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for past nonemployee treatment. To participate in the program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP, and enter into a closing agreement with the IRS. Eligibility Requirements To participate in the VCSP, taxpayers must meet certain eligibility requirements and certify on Form 8952 that they meet these requirements. Specifically, to be eligible for the VCSP, a taxpayer must:
A
taxpayer who participates in the VCSP agrees to prospectively treat the
class or classes of workers identified in the application as employees
for future tax periods. In exchange, the taxpayer pays 10 percent of the
employment tax liability that would have been due on compensation paid
to the workers being reclassified for the most recent tax year if those
workers were classified as employees for such year, determined under the
reduced rates of section 3509(a); is not liable for any interest and
penalties on the liability; and is not subject to an employment tax
audit with respect to the worker classification of the class or classes
of workers for prior years. |