Wrong Worker Classification? IRS Offers Voluntary Settlement

Christopher Axene | October 6th, 2011

Employers who have erroneously treated workers as nonemployees or independent contractors now have an opportunity to get into compliance with the IRS through a low-cost, voluntary reclassification program.

The IRS recently announced a new program that will allow employers to get into compliance by making a minimal payment covering past payroll tax obligations. The program is available to many businesses, tax-exempt organizations and government entities.

To be eligible for the amnesty program, the employer must have:

–          Consistently treated workers as nonemployees in the past

–          Filed all required Form 1099s for workers during the previous years

–          Not be under audit by the IRS, Department of Labor or other agency concerning worker classification.

The employers will pay an amount effectively equaling just above one percent of the wages paid to the reclassified workers for the past year. No interest or penalties would be due, and no audit or payroll taxes for the prior years will occur. Participating employers will be subject to an additional look-back period.

Determining whether your workers are classified correctly can be tricky, and the IRS has been stepping up enforcement of proper classification for several years. The agency has been especially active in pursuing classifications in the construction, aerospace, pharma and technology industries. If you suspect that you may have a worker classification issue and would like to explore whether the disclosure initiative makes sense for your situation, please contact your Rea Associates tax professional.

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