Some companies use contract workers for many functions in their business. While this can be a good strategy for some projects, it is very important to classify workers appropriately for tax purposes. If you treat a worker as an employee but for tax purposes classify them incorrectly as an independent contractor, you could end up owing years of back taxes!

To avoid this problem, which would arise if you were audited, the IRS has created a program where you can correct the error with less of a penalty. One program is available to companies who have been properly filing 1099s for contract workers who should have been treated as employees (Voluntary Classification Settlement Program or VCSP). There is a second program available temporarily for companies who have NOT been filing proper 1099s (Temporary Eligibility Expansion, or VSCP-TEE). This opportunity to re-classify workers as employees will only be available until June 30, 2013, so if this might apply to you, now is the time to get your affairs in order. Find out more information here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Voluntary-Classification-Settlement-Program

In other tax news, the IRS has pulled together some resources for employers to share with their employees – it’s important for them to know what they need to do to be compliant, and it’s not too late yet! Check out the following link, and send it around to your staff if you think it might be helpful to them: http://www.irs.gov/Individuals/Educating-Your-Employees-About-Tax-Compliance.