Gary Bode, CPA: there are potential non-IRS consequences with VCSP and Form 8952. For a free initial phone consult, please call 399-2705.
As a CPA, I worry about the consequences of filing Form 8952, Application for Voluntary Classification Settlement Program(VCSP). Here’s our earlier post on the VCSP and Form 8952. The IRS is more interested in employers treating mis-classified subcontractors as employees in the future, rather than collecting retroactive back taxes and penalties. But there could be unanticipated repercussions in other employment areas and/or agencies. VCSP is new and we simply don’t know the answers to all the issues delineated below.
“It pays to look at the entire range of employment issues before committing to VCSP.”
- Gary Bode, Form 8952 CPA and payroll accountant
OK, so what are the Potential Consequences of VCSP and Form 8952?
- Future cash flow must be considered. Your company will pay employment and unemployment taxes on future reclassified subcontractor wages. I doubt the IRS will tolerate non-compliance. The rule of thumb I use, for cash flow purposes, is to allow an additional 10% on employee’s gross pay to cover these taxes..
- Your company will have to administer payroll in the future. This can be a big deal for folks who’ve never done it before.
- Your company may have to offer benefits for reclassified workers in the future. This is another cash flow issue.
- Will your state follow the IRS lead? Maybe. Minnesota offers a parallel program, but with major deviations from VCSP. More states will surely follow, but until the ramifications of your particular state are known, be careful. What if a reclassified subcontractor has back taxes due? Your company could be on the hook to pay them!
- Will all your affected workers want to become employees? I think a company PR program could overcome most objections through good information. But let’s say a worker owes back child support and worries about garnishment? You could lose this worker.
- What about the Department of Labor? Subcontractors don’t get overtime. What happens if a re-classified subcontractor complains to the DOL? Will the IRS send Form 8952 info to the DOL? Would your company have to pay back overtime wages?
- What if a reclassified subcontractor has IRS back taxes? As an employer, your company could be on the hook to pay the worker’s back taxes.
- What about your State’s unemployment tax? As a CPA, I would want to know if filing Form 8952 for the VCSP opens your company up to back State unemployment taxes!
- Will your Worker’s Compensation insurance extort retroactive premiums from your company? Again, my experience as a payroll CPA makes me think YES. They’re nastier than the IRS.
- Will your reclassified subcontractors have the right to press for back employment benefits, like health insurance? I can imagine some employee suing because there was an expensive medical issue in the past that was paid personally. Will filing Form 8952 provide a basis that reclassified subcontractors were actually employees in the past? That you’ve inadvertently mistreated?
I’m a Form 8952 CPA providing VCSP application and payroll services in Wilmington NC. Please note our virtual office allows us to provide excellent service to long distance and international clients. I think this post demonstrates our proactive philosophy. Other posts should help you gauge our expertise. For a free initial phone consult, please call (910) 399-2705.
