The amount of the Voluntary Classification Settlement Program (VCSP) payment is calculated as follows:
- Base Calculation: The payment under the VCSP is 10 percent 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.
- Effective Tax Rates:
- For compensation up to the social security wage base, the effective tax rate is generally 10.68 percent.
- For compensation above the social security wage base, the effective tax rate is 3.24 percent.
- Application of Rates:
- The 10.68 percent rate applies to compensation up to the social security wage base.
- The 3.24 percent rate applies to compensation above the social security wage base.
- Final Payment Calculation:
- The taxpayer then pays 10 percent of the amount calculated under section 3509(a).
Example Calculations:
Example 1:
- In 2019, a taxpayer paid $1,500,000 to workers being reclassified.
- All workers were compensated at or below the social security wage base.
- Employment taxes under section 3509(a) would be $160,200 (10.68 percent of $1,500,000).
- The VCSP payment would be 10 percent of $160,200, which is $16,020.
Example 2:
- In 2019, a taxpayer paid $1,500,000 to workers being reclassified.
- $1,250,000 was compensated at or below the social security wage base, and $250,000 was above the social security wage base.
- Employment taxes for $1,250,000 would be $133,500 (10.68 percent of $1,250,000).
- Employment taxes for $250,000 would be $8,100 (3.24 percent of $250,000).
- Total employment taxes would be $141,600 ($133,500 + $8,100).
- The VCSP payment would be 10 percent of $141,600, which is $14,160.
Summary:
The VCSP payment is calculated by determining the employment taxes due under section 3509(a) for the most recent tax year, applying the effective rates of 10.68 percent for compensation up to the social security wage base and 3.24 percent for compensation above it, and then paying 10 percent of the total calculated amount.
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
IRM Part 4. Examining Process. Chapter 23. Employment Tax. Section 6. Classification Settlement Program (CSP)
