Employers who believe that they may have been erroneously classifying employees as independent contractors may now take advantage of a new IRS voluntary compliance program. This program allows employers to reclassify any workers erroneously treated as independent contractors. Employers who choose to do so may take advantage of the program’s lower cost settlement terms and audit relief for previous years.
This announcement is probably a precursor to the IRS’s much more aggressive focus on enforcement of large employers’ responsibility for collecting taxes, rather than leaving it up to small independent contractors to pay their own self-employment tax. It is also worth noting that another way businesses can protect themselves from audit liability (besides taking advantage of this amnesty program) is to make certain that their independent contractors actually do pay their full self-employment taxes.
Indeed, while the current Washington theme is to protect the “little guy,” it is ironic that the current IRS policy assumes that this same little guy will cheat on taxes, while the “big guys” will pay everything due, if only they classify the little guys correctly. In any case, where appropriate, this new IRS program may be highly beneficial to employers.
A Frantz Ward LLP alert regarding this new program is available here.