How to File Form 8952 for Voluntary Classification

Form 8952, the Application for Voluntary Classification Settlement Program (VCSP), is a specific IRS document for employers seeking to correct worker classification. The VCSP is a program allowing businesses to voluntarily reclassify workers from independent contractors to employees for future tax periods. In exchange for this voluntary reclassification, the IRS provides partial relief from federal employment taxes that may have been owed for previous years. This program helps employers align with tax compliance while mitigating the financial impact of past misclassification.

Eligibility for the Voluntary Classification Settlement Program

To qualify for the VCSP, an employer must satisfy several requirements set by the IRS. The primary condition is that the employer must have consistently treated the workers in question as independent contractors or other nonemployees. This means the business cannot have wavered in its classification of a particular group of workers; for example, treating them as employees one year and contractors the next would render the business ineligible.

A further requirement involves tax reporting history. The employer must have filed all required Forms 1099 for the specific workers they wish to reclassify for the previous three years. Failure to meet these filing obligations for the three-year look-back period will disqualify an applicant.

The program is also unavailable to businesses already under scrutiny for worker classification. An employer cannot be undergoing an employment tax audit by the IRS, the Department of Labor, or a state-level agency regarding the classification of the same group of workers. The program is intended for voluntary reclassification, not as a resolution for an existing audit.

Information and Calculations for Form 8952

Preparing to file Form 8952 involves gathering specific business information and performing a calculation to determine the settlement amount. The initial part of the form requires the employer’s legal name, Employer Identification Number (EIN), current address, and the name and telephone number of a contact person.

The application involves calculating the settlement payment. The total payment is 10% of the employment tax liability calculated for the most recently completed tax year, using specific reduced rates. Under this program, the income tax withholding portion of the liability is calculated at 1.5% of the wages paid to the reclassified workers. The FICA tax liability is calculated at 20% of the amount that would have been due. These reduced rates significantly lower the liability compared to what would be owed in an audit. The official version of Form 8952 can be found on the IRS website.

The VCSP Application Process

Once Form 8952 is completed, the application must be mailed to the Internal Revenue Service, Detroit Federal Building, 985 Michigan Avenue, 4th Floor CETO, Detroit, MI 48226. It is advisable to file the application at least 120 days before the business intends to start treating the workers as employees to allow for processing time. The application must be signed by the taxpayer, not by a representative.

After the application is submitted, the IRS begins its review process. An agent will verify the taxpayer’s eligibility based on the information provided on the form and internal IRS records. If the application is complete and the employer is eligible, the IRS will contact the taxpayer or their authorized representative to move forward.

A successful application results in a formal closing agreement prepared by the IRS. The employer must sign this agreement, which contractually obligates them to treat the reclassified workers as employees for all future tax periods. Upon signing, the employer must make full payment of the settlement amount. No payment is sent with the initial application; it is only due once the closing agreement is executed.