Alert: Employee or Independent Contractor? Voluntary Settlement Program for Reclassification Announced

The Internal Revenue Service (IRS) has recently announced a settlement program for businesses that have treated workers as independent contractors when only an employee classification is appropriate.  Normally a "reclassification" initiated by the IRS could cost a business owner a minimum of just under 11% of the annual total compensation paid the worker(s) plus penalty and interest. Depending on the total compensation paid to the worker(s), reclassification could become very costly.

Under the voluntary settlement program, businesses can step forward and pay only 10% of the amount that would ordinarily be due based on only one year of compensation without penalty and interest.  In addition to settling prior years for a fraction of the cost of an IRS-initiated reclassification, business owners will not be audited for worker classification issues for prior years.

Business owners that believe they have risk in the area of worker classification should seriously consider the voluntary settlement program.

The IRS has and will continue to step up enforcement in this area.

Contact a member of Decosimo's tax team for additional information.