IRS Form 8952: Application for the VCSP

IRS Form 8952 serves as the application for employers to enter the Voluntary Classification Settlement Program (VCSP). This program provides an opportunity for businesses to voluntarily reclassify workers from independent contractors to employees for future tax periods. By participating, employers can resolve potential worker misclassification issues with the Internal Revenue Service (IRS) and limit their federal employment tax liability for prior years.

Eligibility for the Voluntary Classification Settlement Program (VCSP)

The taxpayer must have consistently treated the workers in question as nonemployees. This means the business cannot have previously classified them as employees for any period. A primary requirement is that the employer must have filed all necessary Forms 1099 for the class of workers being reclassified for the previous three years.

The program is only available to taxpayers who are not currently under an employment tax audit by the IRS. The employer also cannot be under an audit concerning the classification of its workers by the Department of Labor or any state government agency. If the business was previously audited by the IRS or Department of Labor for worker classification, it must have complied with the results of that prior examination to be eligible.

Information Required for Form 8952

Gathering the correct information is a preparatory step before completing Form 8952, which can be found on the official IRS website. The form is divided into several parts, starting with Part I for basic taxpayer information, such as name, Employer Identification Number (EIN), and address. Part II asks for general information, including the date you wish to begin treating the workers as employees and confirmation of the eligibility requirements.

Part III, titled VCSP Information, requires the most detailed calculations. Here, you must identify the total compensation paid to the group of workers being reclassified for the most recently completed calendar year. The settlement payment is 10% of a liability calculated using the rates specified on Form 8952. First, the total compensation is multiplied by 3.24%. Second, the amount of that compensation under the Social Security wage base for the year is multiplied by 7.44%.

These two results are added together, and the final settlement payment is 10% of that sum. The form requires the taxpayer to sign under penalties of perjury, affirming that all information provided is accurate and that they meet the program’s criteria. By signing, the taxpayer also agrees to extend the statute of limitations on assessment of employment taxes for three years.

Filing the Application and Next Steps

Once Form 8952 is completed and the settlement amount is calculated, the application package is ready for submission. The package should contain the signed Form 8952. While the payment is not required with the initial application, it will be due when the final closing agreement is executed. The application should be filed at least 120 days before the date you want the reclassification to take effect. The completed application must be mailed to the IRS office in Detroit, Michigan, as specified in the form’s instructions.

After the IRS receives the application, it will review the submitted information to confirm eligibility. An IRS representative will then contact the taxpayer to discuss the application and finalize the terms. If the IRS accepts the taxpayer into the program, it will provide a closing agreement for the taxpayer to sign. This legally binding agreement finalizes the settlement, and upon its execution, the calculated payment must be made in full. Participation in the program protects the employer from an IRS employment tax audit regarding the classification of that worker group for prior years.