"HIRE" Act Passed
Two new tax benefits are now available to employers hiring workers who were previously unemployed. The Hiring Incentives to Restore Employment (HIRE) Act allows an employer to claim the tax benefits for a newly hired employee who has not worked more than 40 hour during the 60-day period preceding the date of employment.
Employers who hire unemployed workers this year (hired after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2% payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers. This payroll tax exemption will apply to wages paid to qualified employees from Mar. 19, 2010 through Dec. 31, 2010. The reduced tax withholding will have no effect on the employee's future Social Security benefits, and employers will still need to withhold the employee's 6.2% share of Social Security taxes, as well as income taxes. The employer and employee's share of Medicare taxes will also still apply to these wages.
In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax return. These tax benefits can be especially beneficial to employers who are expanding their workforce. New hires filling existing positions also qualify, but only if the workers they are replacing left voluntarily or for cause. In other words, an employer cannot arbitrarily discharge workers and then replace them in order to take advantage of the tax benefits.
The new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than 40 hours for someone else during the 60-day period. The IRS has issued draft Form W-11, HIRE Act Employee Affidavit, for employers to obtain a statement from employees, confirming their prior unemployed status. Employees must sign the form under penalties of perjury. Employers may use a similar statement that provides the same information.
Employers will claim tax exemption on Form 941, Employer's Quarterly Federal Tax Return, beginning with the second quarter of 2010. For wages paid during the applicable part of the first quarter (Mar. 19-31, 2010), you can claim the exemption on Form 941 for the second quarter.
Employers should consider taking advantage of these tax benefits if they are planning on increasing their workforce or replacing employees. The tax benefits provide cost savings; however, these savings may not justify the added payroll costs for an employer who would not otherwise add personnel to the business.
SESCO Management Consultants is available for assistance should you have questions about this legislation. You may contact us by phone at 423-764-4127 or by e-mail at firstname.lastname@example.org .