IRS Expands Relief to Providers Who Hire Assistants
Except for a few narrow exceptions, you should be treating them as employees. This is true regardless of how little you paid them or how few hours they worked for you.
This means withholding Social Security/Medicare taxes, paying federal and state unemployment taxes, and purchasing workers' compensation insurance. I've written articles about this here and here.
Many child care providers fail to property treat their workers as employees and face stiff penalties and interest if audited. The IRS can audit back three years, so these back taxes can add up.
Relief
In 2011 the IRS announced a program that gives relief to child care providers who have been improperly treating their employees as independent contractors. It's call the Voluntary Classification Settlement Program (VCSP).
See my previous article on the VCSP.
Under this program, the IRS will agree not to audit past tax returns to try and collect back payroll taxes. In exchange, child care providers (and other employers) agree to pay a fine of about 1% of the past year's wages they paid. This means you would owe $10.68 for every $1,000 of wages you paid last year.
New Relief
Under the original eligibility rules of this program, child care providers must have issued IRS Form 1099 for their workers for the past three years before they could participate. A recent IRS announcement (IRS Announcement 2012-46) has eliminated this requirement if child care providers sign up before June 30, 2013.
So, you can avoid paying past taxes and penalties even if you did not issue IRS Form 1099 in previous years.
The new rules also allow you to sign up for this program even if you are being audited. Also, the original rule allowed the IRS to audit your tax returns from 2013 and forward for six years (instead of the normal three years). This burden has been eliminated under the new rule.
Some child care providers may be hesitant to participate in the VCSP because they are hiring undocumented workers or are afraid the IRS will notify their state department of taxation and subject them to a state audit. The VCSP rules prevent the IRS from sharing your information with either the Department of Labor or your state tax department.
To apply for this program, fill out IRS Form 8952 Application for Voluntary Classification Settlement Program. I've written instructions on how to fill out this form.
For more information on VCSP go here and here.
Take Action
If you have not been properly treating your workers as employees, take advantage of these new relaxed rules and fill out Form 8952 before June 30, 2013. It's well worth it!
Tom Copeland - www.tomcopelandblog.com
