How does a taxpayer take part in the VCSP

To participate in the Voluntary Classification Settlement Program (VCSP), a taxpayer must follow these steps:

1. Eligibility Requirements: Ensure that the taxpayer meets the eligibility criteria for the VCSP. Specifically, the taxpayer must:
   • 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.
   • Be currently treating the workers as nonemployees.
   • 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.
   • Have consistently treated the workers as nonemployees.
   • Have no current dispute with the IRS regarding the classification of the workers.
   • Not be under employment tax examination by the IRS or any state agency concerning the proper classification of the workers.
   • Not have been examined previously by the IRS or the Department of Labor concerning the proper classification of the workers, or if examined, must have complied with the results of the prior examination and not be currently contesting the classification in court.
2. Application Submission: Complete and submit Form 8952, Application for Voluntary Classification Settlement Program. The form should be filed at least 120 days before the date the taxpayer wants to begin treating the workers as employees.
3. Form 8952 Details: Ensure that Form 8952 is complete and accurate, including:
   • The taxpayer's name and Employer Identification Number (EIN).
   • The contact person’s details.
   • General information about the workers to be reclassified.
   • Payment calculation using section 3509(a) rates.
   • A signature by an authorized person.
4. Supporting Documentation: Attach a statement listing the names and Social Security Numbers (SSNs) of the workers to be reclassified.
5. No Payment with Form 8952: Do not send payment with Form 8952. Payment will be submitted later with a signed closing agreement.
6. IRS Review: The IRS will review the application to determine eligibility. If the application is complete and the taxpayer meets the eligibility requirements, the IRS will offer a VCSP closing agreement.
7. Closing Agreement: Enter into a closing agreement with the IRS. This agreement will outline the terms of the reclassification and the amount to be paid.
8. Payment Submission: Submit the required payment with the signed closing agreement. The payment is calculated as 10% of the amount of employment taxes that would have been due on compensation paid to the workers being reclassified for the most recent tax year, calculated under the reduced rates of section 3509(a) of the Internal Revenue Code.

By following these steps, a taxpayer can successfully participate in the VCSP and reclassify their workers as employees for future tax periods with limited federal employment tax liability for past nonemployee treatment.

Sources:
Instructions for Form 8952 (11/2023)
Publication 15 (2024)
IRM Part 21. Customer Account Services. Chapter 7. Business Tax Returns and Non-Master File Accounts. Section 2. Employment and Railroad Tax Returns
IRM Part 4. Examining Process. Chapter 23. Employment Tax. Section 20. Voluntary Classification Settlement Program (VCSP) Procedures
Publication 4268 (8/2022)