Are government entities eligible for the VCSP

Yes, government entities are eligible for the Voluntary Classification Settlement Program (VCSP) if they meet all the eligibility requirements. The VCSP allows eligible taxpayers, including government entities, to voluntarily reclassify workers as employees for federal employment tax purposes for future tax periods with limited federal employment tax liability for past nonemployee treatment.

To participate in the VCSP, a government entity must:

1. Want to voluntarily reclassify certain workers as employees for federal income tax withholding, Federal Insurance Contributions Act (FICA), and Federal Unemployment Tax Act (FUTA) taxes for future tax periods.
2. Be presently treating the workers as nonemployees.
3. Have filed all required Forms 1099 for each of the workers to be reclassified for the three preceding calendar years ending before the date Form 8952 is filed.
4. Have consistently treated the workers as nonemployees.
5. Have no current dispute with the IRS as to whether the workers are nonemployees or employees for federal employment tax purposes.
6. Not be under employment tax examination by the IRS (if the taxpayer is a member of an affiliated group, this requirement is met only if no member of the affiliated group is under employment tax examination by the IRS).
7. Not be under examination by the Department of Labor or any state agency concerning the proper classification of the class or classes of workers.
8. Not have been examined previously by the IRS or the Department of Labor concerning the proper classification of the class or classes of workers, or if examined, must have complied with the results of the prior examination and not be currently contesting the classification in court.

However, the VCSP is not available to state and local government employers for workers covered under a Section 218 agreement. It is available to state and local government employers for workers not provided Social Security coverage under a Section 218 agreement.

For more detailed information on the application process and eligibility requirements, government entities can refer to the instructions for Form 8952 and the Internal Revenue Manual (IRM) Part 4, Chapter 23, Section 20.

Sources:
Publication 15 (2024)
Instructions for Form 8952 (11/2023)
IRM Part 4. Examining Process. Chapter 23. Employment Tax. Section 20. Voluntary Classification Settlement Program (VCSP) Procedures
IRM Part 21. Customer Account Services. Chapter 7. Business Tax Returns and Non-Master File Accounts. Section 2. Employment and Railroad Tax Returns
Publication 963 (11/2014)