Connecticut employers found by Department of Revenue Services (DRS) auditors to have misclassified their workers can face large tax assessments along with penalties and interest. In most cases these assessments are substantial.

However, before this happens, DRS is encouraging employers to apply to the state’s Voluntary Disclosure Program. DRS Commissioner Kevin B. Sullivan said Voluntary Disclosure is an especially attractive proposition for employers that qualify for the federal Voluntary Classification Settlement Program.

Commissioner Sullivan said, “Worker misclassification is a significant problem with adverse consequences in the State of Connecticut. Workers who are incorrectly treated as independent contractors or who are paid ‘off the books’ do not receive the benefits and protections they deserve. Employers who misclassify their workers also fail to pay the proper employment taxes. The Connecticut Voluntary Disclosure Program gives employers the opportunity to do right by the state and, more importantly, do right by their employees.”

In the past two years the Internal Revenue Service (IRS), Connecticut, and a number of other states have begun concentrated efforts to identify and correct worker misclassification.

In October, the IRS announced the creation of the Voluntary Classification Settlement Program (VCSP). The VCSP provides employers with an opportunity to voluntarily reclassify their workers as employees for future tax periods and receive limited federal employment tax liability for the past non-employee treatment.

DRS Commissioner Sullivan said that while Connecticut’s Voluntary Disclosure Program is not specific to worker misclassification, employers can still come forward and receive favorable benefits such as a limited look back period and the elimination of penalties.

“In light of the penalties and interest employers face when an audit uncovers worker misclassification, the terms of the DRS Voluntary Disclosure Program are generous,” Commissioner Sullivan said.

Taxpayers wishing to know more about the Voluntary Disclosure Program may contact DRS anonymously.DRS will not in any way seek to identify those taxpayers who wish to remain unidentified. However, the formal request to participate in the program must be in writing. Contact us and do so while remaining anonymous when making the formal application.