What is the IRS Voluntary Classification Settlement Program (VCSP)?

The Internal Revenue Service recently changed methods for classification of who is a W-2 versus a 1099 employee. The program will help employers get into compliance by making a minimal payment covering past payroll requirements rather than waiting for an IRS audit.
The new Voluntary Classification Settlement Program (VCSP) is a part of the larger “Fresh Start” program that focuses on changes to IRS collection practices that will lessen the negative impact on struggling individual and small business taxpayers. The VCSP is optional and provides taxpayers with an opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past nonemployee treatment. The VCSP is available to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees. To be eligible, applicants must:

  • Consistently have treated the workers in the past as nonemployees,
  • Have filed all required Forms 1099 for the workers for the previous three years
  • Not currently be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.