IRS VCSP is a Great Reminder about Nanny Tax Compliance
You may have seen Stephanie Breedlove featured in a Wall Street Journal story recently recently about “nanny tax amnesty.” The technical term the RS is using is Voluntary Classification Settlement Program (VCSP) and this is very relevant to the household employment industry. In our experience, there are 2 very common mistakes families make when hiring a household employee:
1) They misclassify their employee as an “independent contractor” by giving them a Form 1099. (Worker misclassification is considered tax evasion for the family. Meanwhile, it increases the employee’s tax rate and limits her benefits).
2) They fail to withhold taxes and report wages properly. (Also known as “paying under the table,” the IRS considers this tax evasion too. It carries similar risk for the family and denies all benefits to the employee).
The VCSP helps with the first mistake because it is designed to allow employers who have misclassified their employee to come clean with very minimal penalties compared to what the IRS usually levies. By filling out the appropriate forms and paying the subsequent penalty, the employer agrees to treat the “independent contractor” as an employee moving forward and is not subject to an IRS audit.
For families who are currently misclassifying their household employee and want to correct the mistake, we recommend speaking with an accountant who will be able to assist in filing the correct paperwork to complete the VCSP. To take advantage of this amnesty offer, you must file by June 30, 2013.
For families currently paying their household employee “under the table,” Breedlove & Associates is happy to provide a simple, cost-effective solution that serves as an “amnesty program.” Lobbying on behalf of clients, we have an excellent track record of getting the penalties waived for first-time offenders.
As with any tax matter, it is much cheaper and easier to rectify a mistake if you come forward prior to an audit – and these “nanny tax” mistakes are prime examples of that IRS philosophy.
If you have any questions about these amnesty initiatives, please don’t hesitate to call us at 1-888-273-3356. We’re here to help.Breedlove and Associates, guest blogger