Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers.
The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.
In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000. This credit is claimed on the 2011 business income tax return.
IRS posts HIRE Act frequently asked questions (“FAQs”) and releases Form W-11, employee affidavit.
http://www.irs.gov/businesses/small/article/0,,id=220745,00.html
IRS has posted FAQs on the payroll tax exemption created by the recently-enacted HIRE Act. In addition, IRS has released Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, which employers will be able to use to meet the exemption’s employee certification requirement.
Payroll tax exemption FAQs. These FAQs explain that:
- The payroll tax exemption is exemption from the employer’s 6.2% share of social security tax on all wages paid to qualified employees (see below) from Mar. 19, 2010 through Dec. 31, 2010.
- The employee’s 6.2% share of social security tax and the employer and employee’s shares of Medicare tax still apply to all wages.
- Taxable businesses and tax-exempt organizations qualify for the exemption.
- The exemption does not apply to household workers.
- The exemption applies to workers hired to staff a new business if the workers are qualified employees.
- The exemption can be claimed for a worker who was laid off in 2009 and rehired in 2010 if the employee is a qualified employee.
FAQs about qualified employees. This information explains that:
- Qualified employees are individuals who begin employment with a qualified employer after Feb. 3, 2010, and before Jan. 1, 2011, who have been unemployed or employed for less than 40 hours during the 60-day period ending on the date such employment begins, and who are not family members of or related in certain other ways to the employer.
- Qualified employees must certify by a signed affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the 60-day period ending on the date they started employment.
- The 60-day period must be continuous and can span 2009-2010.
- The exemption does not apply to wages paid to an employee who is hired to replace an existing worker, unless the existing worker terminated employment voluntarily or was terminated for cause.
- An employer may apply the exemption to wages paid to a rehired employee who is otherwise a qualified employee.
- If an employer lays an employee off because of lack of work and later, when work picks up, hires a new employee, the payroll tax exemption apply to wages paid to the new employee.
- The exemption can apply to a newly hired recent graduate who has been in school for some or all of the 60 days preceding the start of his employment.
FAQs about claiming the exemption. These FAQs reveal that:
- The payroll tax exemption is claimed on Form 941, Employer’s QUARTERLY Federal Tax Return, beginning with the second quarter of 2010.
- The payroll tax exemption for wages paid during the period Mar. 19 through Mar. 31, 2010 (the first quarter of 2010) is claimed on the employer’s Form 941 for the second quarter of 2010.