Worker Misclassification: The Real Cost of the IRS's New Settlement Program

Abstract

The Internal Revenue Service (“IRS”) continues to offer the Voluntary Classification Settlement Program (“VCSP”) to provide an incentive for taxpayers to comply with their employment tax obligations. The VCSP is part of a larger “fresh start” initiative by the IRS to encourage taxpayers and businesses to get compliant, while giving them financial certainty under the VCSP’s penalty framework. Under the VCSP, eligible businesses will pay reduced back taxes and avoid all interest and penalties if they properly reclassify workers from nonemployees or independent contractors to employees for future tax periods. This article discusses the benefits of the VCSP and the requirements for the program, as well as considerations related to information sharing between the IRS and the U.S. Department of Labor, and the state taxing and labor authorities.