IRS Continues Amnesty Program for Misclassified Workers

Employers who may have incorrectly classified workers as independent contractors now have a chance to correct their mistake without triggering a significant income and employment tax liability if they agree to prospectively treat workers as employees and pay a fraction of  the actual past tax liability.  This amnesty program significantly reduces the amount of money a nonprofit or  for-profit entity would have had to pay if the misclassification were uncovered by the IRS.

Employers seeking amnesty must satisfy eligibility requirements, submit an application to the IRS, and enter into a closing agreement with the IRS.  The agreement that the employer enters with the IRS need not include all of the workers that the employer is treating as independent contractors.  If an employer chooses to participate in the program, it will be required to pay 10% of the amount of the employment taxes that would otherwise have been due on compensation paid for the most recent tax year to the workers. This amounts to about one percent (1%) of the wages paid to the reclassified workers during the prior year and  the IRS will not impose interest or penalties on the amount paid, and the employer will not be subject to an employment tax audit with respect to these workers for prior year

A caveat – the program covers only federal taxes and not unpaid local state payroll taxes.

The IRS did not set a deadline yet for businesses (or charities)  to apply.

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