The HIRE Act created two new tax benefits designed to encourage employers to hire and retain new workers. As a result, employers who hire unemployed workers this year (after February 3, 2010 and before January 1, 2011) may qualify for a 6.2 percent payroll tax incentive, in effect exempting them from the employer’s share of social security tax on wages paid to these workers after March 18. This reduction will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2 percent share of Social Security taxes, as well as income taxes. In addition, for each unemployed worker retained for at least a year, businesses may claim a new hire retention credit of up to $1,000 per worker when they file their 2011 income tax returns.
These two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify for either of these tax incentives.
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. To meet this requirement, employers can use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit. 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.
To claim the payroll tax exemption for eligible new hires, eligible employers will use Form 941, Employer’s Quarterly Federal Tax Return, beginning in the 2nd quarter. The IRS has issued a draft Form 941, including new lines 6a, 6b, 6d and 6e to claim credit for qualified employees paid in the 2nd quarter and lines 12c, 12d and 12e to claim credit for wages paid to qualified employees from March 19 – 31. To claim the payroll tax exemption, the employer must have a signed Form W-11 Affidavit on file for each qualified employee prior to filing Form 941.
The IRS has issued revised guidance on these initiatives. See attached Frequently Asked Questions for more details.
Applicable to Summer Interns and Recent College Graduates
Please note that the payroll tax exemption applies to all qualified new hires, including summer high school interns and recent college graduates so long as they were 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.
Please call us to further discuss these hiring and retention incentives.
