If you have been paying contractors who really behave like employees, then I highly recommend you use the Voluntary Classification Settlement Program to come clean. The IRS and several states have aggressively been pursuing employers who have misclassified workers. What is really means is that you have contractors working for you that under the definition of the law, should be employees. Why does the Federal and State government care? Well, you pay social security and medicare taxes on your employees and the agencies need those funds. When you hire contractors under a 1099, the government agencies lose their payroll tax dollars. And it is a LOT of Dollars!
If you have any doubt at all about whether you have misclassified workers then I highly recommend you consult with your tax advisor and employment lawyer to get a better understanding of your responsibilities and how this law works.
Then if you DO in fact have misclassified workers, this VCSP program will permit you to reclassify workers moving forward and the IRS won’t look backwards to prior years regarding penalties for this misclassification. A requirement for this program is that you have in fact issued 1099s to contractors in prior years.
File Form 8952 (Application for Voluntary Classification Settlement Program) at least 60 days prior to treating contractors as employees. So if you want to “come clean” for 2023, let’s get this form completed and filed now.
Reach out to me and lets start 2023 off right!