IRS relaxes requirements for reclassifying workers as employees

December 2012


The Voluntary Worker Reclassification Program (VCSP), initiated by the IRS in October 2011, was designed to increase employment tax compliance and provide certainty for businesses that wish to reclassify a class of workers engaged as independent contractors to the status of employee. Participation in VCSP allows a business to prospectively reclassify workers as employees by completing an application and paying a considerably reduced portion of the prior year's tax liability.

Two recent IRS announcements, Announcements 2012-45 and 2012-46, eliminated the significant concerns raised by commentators about the initial VCSP program.

Under the modified program, (1) taxpayers currently under IRS audit may be eligible to take advantage of the program, and (2) an extension of the period of limitations on assessment of employment taxes no longer is required for participation. The IRS also expanded eligibility for VCSP until June 30, 2013 for certain taxpayers that did not previously file Forms 1099.

Observation: These modifications should make the program more appealing to employers considering reclassification and should enhance options for employers in light of potential exposure due to misclassification.

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