Voluntary Classification Settlement Program Overview

April 27, 2012 — 2,070 views  
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Many of the tax issues related to employing a workforce of any size can be confusing. As such, it's easy for companies and small business owners to end up paying more to the federal government than they need to. Thankfully, there are processes, such as the Voluntary Classification Settlement Program (or VCSP), that let organizations shift from one kind of employment tax structure to another with minimal penalties.

For example, many companies choose to treat their workers as independent contractors to minimize the funds they owe toward a payroll tax. However, after a workforce has grown to a particular size, it no longer confers an advantage of such employers, and they may decide designating their employees as a legitimate full-time staff is the best choice for them.

However, this transition usually brings with it significant tax penalties meant to recoup what money would have been paid had the workers been properly designated in the past. To encourage companies to shift to standard workforce tax models, the VCSP was adopted. It basically lets so-called "independent contractors" be reclassified as full employees if the following conditions are met:

- That every single employee working for a company had been treated as an independent contractor.
- The appropriate 1099 forms were filed with the government for each worker for the past three years.
- A company isn't presently under audit by the IRS or subject to investigation by any other branch of the federal government.