Revenue Ruling 2025-3addresses the application of Section 530 of the Revenue Act of 1978 (section 530), section 3509 rates, and the requirements to issue a Notice of Employment Tax Determination Under IRC § 7436 (§ 7436 Notice) in several distinct factual situations. Internal Revenue Code section 3509 allows an employer to remit unpaid taxes at reduced rates if an employer fails to deduct and withhold income tax or the employee share of FICA tax with respect to any of its employees because the employer treated that employee as a non-employee.

Revenue Procedure 2025-10modifies and supersedes Revenue Procedure 85-18, 1985-1 CB 518; it clarifies the provisions of Rev. Proc. 85-18 with respect to the definition of employee, the section 530 requirement for the filing of required returns, and the reasonable basis safe harbor rules. This revenue procedure also amplifies the guidelines set forth in section 3.03 of Rev. Proc. 85-18 (interpreting the word “treat” for purposes of determining whether a taxpayer did not treat an individual as an employee for purposes of section 530(a)). This revenue procedure also includes new provisions that reflect statutory changes made to section 530 since 1986 that added sections 530(d), (e), and (f).  Section 530 of the Revenue Act of 1978 (as amended) was enacted to provide relief to taxpayers involved in worker classification disputes with the IRS. Section 530 is not an Internal Revenue Code provision.

Revenue Ruling 2025-3 and Revenue Procedure 2025-10 will be published in Internal Revenue Bulletin 2025-4 on Jan. 21, 2025.