May Be Time to Reclassify Independent Contractors in Debt Relief Companies

The Internal Revenue Service has launched a new program to allow employers to get their workers classified correctly. The Voluntary Worker Classification Settlement Program is designed to allow employers to make the switch from contractor to employee without facing stiff penalties if caught with incorrectly classified workers. It’s sort of an amnesty program.

Under the program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. 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. – Source

It seems that many sales based debt relief operations classify workers as contractors when in fact that would be a cloudy matter at best.

“Employers accepted into the program will pay an amount effectively equaling just over one percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years.”

And in a big surprise, the form to accomplish this is only a simple two pager. Shocker.

I understand why employers in all industries want to classify employees as contractors, it saves money. Labeling a person that works for you as a contractor also makes them easy to dispose of without unemployment penalties if things change or don’t work out.

This new IRS reclassification program may be worth talking to your tax adviser if you currently have contract workers on your books. And it should be attractive for the debt relief industry, it’s a settlement program.


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