Employee v. Independent Contractor? New IRS Program Can Help Floridians Decide

The Internal Revenue Service (IRS) recently developed a new, optional program called the Voluntary Classification Settlement Program (VCSP) to allow taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. The VCSP provides taxpayers with this opportunity for future tax periods, with limited federal tax liability for the past nonemployee treatment. The program will enable many employers to resolve past worker classification issues and achieve certainty under the tax laws.

As a part of the "Fresh Start" initiative of the IRS, the VCSP will help taxpayers become compliant with the tax laws. "This settlement program provides certainty and relief to employers in an important area," said IRS Commissioner Doug Shulman. "This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations."

The facts and circumstances common law test govern whether a worker is performing services as an employee or as an independent contractor. Generally, the deciding factor under the test is whether the service recipient has the right to direct and control the worker as to how to perform the services. Under certain circumstances, the determination of the proper worker classification status under the common law may not be clear.

The VCSP is designed to increase tax compliance for employers by providing greater certainty for them, their workers, and the IRS. Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed in the past if they prospectively treat workers as employees. The VCSP is available to many businesses, tax-exempt organizations, and government entities that currently treat their workers as nonemployees or independent contractors erroneously and now want to correctly classify these workers as employees.