Posted by Abundant Wealth Planning LLC

IRS Voluntary Classification Settlement Program

IRS Voluntary Classification Settlement Program

The IRS' voluntary Classification settlement program offers taxpayers an opportunity to reclassify workers as "employees" for tax with the hope of getting limited tax relief in subsequent tax periods. It is a voluntary program, and the taxpayer must meet some eligibility criteria before participating in it. Upon completing the requirements, the taxpayer can apply by filling the IRS form 8952 Application for Voluntary Classification Settlement Program, which seals the IRS agreement. 

Through the VCSP, qualified businesses can reclassify workers ranging from contractors to employees for tax purposes. When such companies apply, they will need approval from the IRS for the voluntary program and get limited tax reprieve from the government. The relief is for future purposes for each reclassified worker called an employee of the business. Through this program, the IRS can also reduce participating employers owed taxes without any interest or fees. 

The IRS set up the VCSP to support employers by managing the burdens of business taxes filed by the employers. Some companies engage in employment fraud through the misclassification of independent contractors intending to avoid paying taxes, and the IRS uses this scheme to discourage such activities. 

Although the VCSP is available for any tax paying business or employer, some eligibility requirements must be met. For example, the IRS insists that employers should not be currently under a tax audit to classify employees. When the business is approved for VCSP, the IRS will treat workers' classified as employees during subsequent tax periods. 

So what are the benefits of VCSP?


The benefits of VCSP

Companies must make their business practices comply with the IRS payroll services' rules and regulations when operating as a payroll service. The laws are in different parts, which makes them quite overwhelming for employers. However, when entrepreneurs apply for VCSP, business owners receive ease from any tax burden associated with their workers' misclassification. 

When accepted by the IRS, the business will enjoy the following:

  • The employer's previous tax years will not be subject to an audit under the VCSP. 

  • The program doesn't insist on interest charges or penalties. 

  • The employers only pay 10% of the tax liability owed on employees from the prior tax year. 


Who is eligible for VCSP?

All businesses are not eligible for the IRS program, and for eligibility to join in and get the IRS approval, the companies must fulfill the following criteria: 

  • Fill form 1099 for workers over the last three years 

  • There should be no current attachment to an employment audit. 

  • There should be no audit regarding the workers' classification by the government's agency. 

  • The workers should be classified as "independent" contractors consistently or as previous non-employees. 

  • The business must pay 10% of tax liability (for employment).

  • The company must not be accountable for punishment on the said amount. 


Application for VCSP entails the business meeting the criteria mentioned above and then follow these steps to apply: 

  • Use the Form 8952, Application for Voluntary Classification Settlement Program. 

  • The employer is advised to list the application maximum of 60 days before classifying working staff. 

  • The business applying for the program should provide the personal details for someone with an authenticated legal authority to finish the process and complete Form 8952 with a signature. 

  • If accepted, the IRS, through the VCSP, will enter a concluding agreement. 


A crucial aspect of managing employees is the payroll system, as employers must know how to maintain control over salaries, taxes, and financial instruments. Sometimes, the process can be complicated for the business owner, but through VCSP, employers will ease their tax burdens and avoid the pitfall of employees' misclassification.


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