Tax Tip for April 2010
HIRE Act: Payroll Tax Exemption & Retention Credit
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.
