Imagine you are doing your due diligence and double checking your files. You discover that some employee’s have been misclassified. Your immediate reaction is, what can I do to fix it? Well there is good news! You caught the mistake before being audited and you can file the mistake with the IRS to lesson the possible fines.
If you do find yourself in this situation, the IRS has a Voluntary Classification Settlement Program (VCSP) that you can apply for. Filling out Form 8952, the application for the program, can save your company from a potentially large fine. The application must be filed at least 60 days before the taxpayer wants to classify it’s workers as employees.
VCSP allows employers to agree to change the classification for Independent Contractors to Employees and begin immediately paying them as employees. In addition, the taxpayer cannot already be under employment tax audit or classification of workers audit. By agreeing to do this the fines are reduced to 10% per employee tax liability that would have been paid, if the individual were classified correctly.
If you have employees classified incorrectly, consider this before you are audited and loose this option.