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HIRE Act provides two new tax benefits for certain 2010 new hires

June 4th, 2010

Once again payroll has hit center stage for tax relief. The HIRE Act provides two new tax benefits for certain 2010 new hires. First, employers may qualify for exemption from the employer's share of Social Security tax for most 2010 wages for certain new employees hired after February 3, 2010. Second, an employer may claim an additional general business tax credit of $1,000 per qualified worker. This means for every $16,000 in wages, the employer stands to receive roughly $1000 in tax credits for Qualified Individuals. According to the IRS, Qualified Individuals are defined as: any individual who begins employment with a qualified employer on or after February 4, 2010 through December 31, 2010, has not been employed for more than 40 hours during the 60-day period ending on the date the individual begins employment, is not employed by the qualified employer to replace another employee unless the other employee was separated from employment voluntarily or "for cause" (layoff, reduced hours). This includes part-time and full-time employees.

The Internal Revenue Service released a new form that will help employers claim the special payroll tax exemption that applies to many newly-hired workers during 2010, created by the Hiring Incentives to Restore Employment (HIRE) Act signed by President Obama on March 18.

New Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, is now posted on IRS.gov, along with answers to frequently asked questions about the payroll tax exemption and the related new hire retention credit. The new law requires that employers get a statement from each eligible new hire, certifying under penalties of perjury, that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers can use Form W-11 to meet this requirement.

How to Claim the Payroll Tax Exemption

Form 941, Employer’s QUARTERLY Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The HIRE Act does not allow employers to claim the exemption for wages paid in the first quarter but provides for a credit in the second quarter. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return.

The HIRE Act requires that employers get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. Employers can use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, to meet this requirement. Though employers need this certification to claim both the payroll tax exemption and the new hire retention credit, they do not file these statements with the IRS. Instead, they must retain them along with other payroll and income tax records. These two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify as long as they are replacing workers who left voluntarily or who were terminated for cause and otherwise are qualified employees.

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