U.S. News

IRS targets employers on withholding tax

By Patrick Temple-West

WASHINGTON (Reuters) - The tax-collecting Internal Revenue Service on Wednesday offered an amnesty program to businesses that are, intentionally or otherwise, failing to withhold taxes from certain workers' pay.

The voluntary program offers employers an opportunity to reclassify workers, typically those listed as independent contractors, and establish them as employees for tax withholding purposes.

The program -- effective immediately and to be held open indefinitely -- allows businesses "to pay a very minimal amount of back taxes for an agreement to classify employees right," IRS Commissioner Doug Shulman said on a conference call.

The issue of employee classification is a "confusing and complex area," Shulman said.

Businesses can reduce their tax liabilities by classifying certain workers as nonemployees, and some do this by treating some employees as independent contractors who might not fit that definition.

The IRS has been legally prohibited since the 1970s from writing clarifying language on this issue, Shulman said.

The IRS could not estimate the number of employers who might come forward under the program or provide a dollar figure estimate for how much tax revenue could result, Shulman said.

Under the program, an employer would pay 10 percent of the employment tax that may have been due on worker pay in the most recent tax year. The employer will not be liable for any interest or additional penalty payments, IRS said.

The program will allow businesses to affordably clean up their classifications, Shulman said.

Businesses might have been reluctant to come clean with the IRS if they faced a steep penalty under current IRS regulations, he said.

The program is designed to attract small businesses, Shulman said, because these employers often face "legitimate confusion" about employee classification status.

The IRS release is at http://www.irs.gov/newsroom/article/0,,id=24 6203,00.html.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh)