Voluntary Classification Settlement Program (VCSP)

VOLUNTARY CLASSIFICATION SETTLEMENT PROGRAM (VCSP)

As Revised by the IRS on December 4, 2019.

What is the VCSP?

The VCSP is a voluntary program that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes. Apply to a taxpayer who has consistently treated the workers as independent contractors or other nonemployees (who have filed all required Forms 1099) and want to reclassify these workers as employees.

How do you apply to participate in this program?

The taxpayer (TP) must apply to participate by filing Form 8952, "Application for Voluntary Classification Settlement Program", and enter into a closing agreement with the IRS.

The application should be filed at least 60 days prior to the date the taxpayer wants to begin treating its workers as employees. The IRS will make every effort to process Form 8952 with sufficient time to allow for the voluntary reclassification on the requested date. 

Along with the application, the taxpayer may provide the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848).  However, the taxpayer, and not the taxpayer's representative, is required to sign Form 8952. The IRS will contact the taxpayer or authorized representative to complete the process after reviewing the application and verifying the taxpayer’s eligibility. 

Background and History:

The VCSP allows eligible taxpayers to obtain relief similar to that currently available through the Classification Settlement Program for taxpayers under examination.  Exempt organizations and government entities may participate in VCSP. 

This program, originally released in Announcement 2011-64, was later modified in Announcement 2012-45 including:

• Permit a taxpayer under IRS audit, other than an employment tax audit, to be eligible to participate in the VCSP
• Clarify the current eligibility requirement that a taxpayer who is a member of an affiliated group within the meaning of section 1504(a) is not eligible to participate in the VCSP if any member of the affiliated group is under employment tax audit
• Clarify that a taxpayer is not eligible to participate if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or Department of Labor; and
• Eliminate the requirement that a taxpayer agrees to extend the period of limitations on assessment of employment taxes as part of the VCSP closing agreement with the IRS.

Announcement 2012-45 (2012-51 I.R.B. 724) provides notice and information about the revised program.

Who are not eligible/are eligible to participate under this program?

Additionally, the taxpayer cannot currently be under employment tax audit by the IRS and the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency.

If the IRS or the Department of Labor has previously audited a taxpayer concerning the classification of the workers, the TP will be eligible only if the taxpayer has complied with the results of that audit and is not currently contesting the classification in court.

What the TP agrees to do:

A taxpayer participating in the VCSP will agree to prospectively treat the class or classes of workers as employees for future tax periods. In exchange, the taxpayer will:

• Pay 10 percent of the employment tax liability that would have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509(a) of the Internal Revenue Code. See VCSP FAQ 15, for information on how payment under the VCSP is calculated. Also, see Instructions to Form 8952;
• Not be liable for any interest and penalties on the amount; and
• Not be subject to an employment tax audit with respect to the worker classification of the workers being reclassified under the VCSP for prior years. 

Eligible taxpayers accepted into the VCSP will enter into a closing agreement with the IRS to finalize the terms of the VCSP and will simultaneously make full and complete payment of any amount due under the closing agreement.

IRS Expands Voluntary Worker Classification Settlement Program; Relief From Past Payroll Taxes Available to More Employers Who Reclassify Their Workers As Employees

Consult your CPA or the IRS.


More information is available on IRS.gov, keyword “VCSP



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What else (other than cash), you can contribute to your favorite charitable organization?

•  You can contribute your time (e.g., Volunteer Services)...
•  Volunteer with out-of-pocket expenses...
•  Publicly and non-publicly traded stocks...
•  Artwork...
•  Autos, boats, and planes...
•  Patents and other intellectual property, and
•  Non-cash donations.

The form of the written documentation acknowledging your varies by amount and type of donations. You may be required to attach with your 1040, IRS Form 8283, and/or Form 1098-C, or any other statement(s) as prescribed by the IRS. Sometimes you are required to obtain an appraisal in the form prescribed by the IRS. 

The IRS had established the definitions of the following terms:  "Written Records",  "Acknowledgement", and what is a "Pledge Card". 

Please consult with your tax professional or the IRS.gov.



Health Savings Accounts 

Annual contribution limitation. For the calendar year 2019, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $2,250. 

For the same calendar year, the annual limitation on deductions under § 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $4,500.

There is an additional contribution of $1,000 for people over 55-year-olds.

Please consult the IRS or your tax professional for more information and applicability. 

Source: IRS.gov

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