IRS Expands Relief to Child Care Providers Who Hire Assistants

Do you pay someone to help you care for children in your family child care business?  Are you treating them as an employee or independent contractor? Unfortunately, if you have not treated your workers as employees you run the risk of facing stiff penalties and interest if audited by the IRS – and the IRS can go back three years. This means you should have been withholding Social Security/Medicare taxes, paying federal and state unemployment taxes, and purchasing workers’ compensation insurance.

But don’t panic.  In 2011, the IRS introduced a new program called the Voluntary Classification Settlement Program (VCSP).  This program enabled providers to reclassify their workers from independent contractors to employees to meet compliance.  In December 2012, the IRS introduced the VCSP Temporary Eligibility Expansion permitting eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes and obtain relief similar to that obtained through the current Classification Settlement Program (CSP).

This is part of a larger “Fresh Start” initiative at the IRS to help taxpayers and businesses address their tax responsibilities.  “This settlement program provides certainty and relief to employers in an important area,” said IRS Commissioner Doug Shulman. “This is part of a wider effort to help taxpayers and businesses to help give them a fresh start with their tax obligations.”

Employers accepted into the program will pay an amount effectively equaling just over 1% of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes. The VCSP Temporary Eligibility Expansion is available through June 30, 2013.

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.

For those child care providers who have hired undocumented workers or are afraid the IRS will notify their state department of taxation, the VCSP rules prevent the IRS from sharing your information with either the Department of Labor or your state tax department.

So here’s what you need to do…

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.  Contact your tax preparer to ensure you meet all of the requirements to be eligible in this program and to answer any questions you may have.