As part of the “Fresh start” initiative by the IRS to encourage more corporate and individual tax compliance, a new voluntary program has been announced to encourage employers to properly classify employees as such, rather than as independent contractors. Under the program, employers can obtain substantial relief from federal payroll taxes they would have owed in the past, if they prospectively classify their hires as employees. To be eligible, an applicant must:
- Have consistently classified the workers in the past as nonemployees
- Have filed all of the required Forms 1099 for its workers for the previous 3 years
- Not currently be under audit by the IRS, the Department of Labor, or a state agency concerning employee classification
This announcement came shortly after the IRS signed a memorandum of understanding (MOU) with the Department of Labor to share information about employees who have been misclassified as independent contractors. The goal of the IRS is to narrow the tax gap, as employers are more likely to withhold and submit taxes than is the case with independent contractors.
For more details click here IRS Employee Reclassification