The IRS Voluntary Classification Settlement Program (VCSP) allows taxpayers to reclassify their workers as employees for employment tax purposes and eliminate the risk of payroll tax problems caused by misclassification in previous tax years. In essence, the taxpayer agrees to classify its workers as employees going forward and pays a small portion of the employment tax liability that would have been owed for previous tax years if the workers were considered employees. In exchange, the IRS will not conduct a payroll tax audit based on worker classification for prior tax years.
The VCSP should not be confused with the Classification Settlement Program (CSP), which is available to taxpayers currently under an employment tax audit. The VCSP is not available to taxpayers who are currently under an employment tax audit.
Eligibility for the Voluntary Classification Settlement Program