July 15, 2010
Take Advantage of Payroll Incentives Under the HIRE Act - Now Available for Second Quarter Payroll Filings
A key component of the HIRE Act (Hiring Incentives to Restore Employment Act) is now available for second quarter payroll taxes for businesses hiring new employees in 2010. The payroll tax holiday is an exemption of 6.2% of the payroll tax – essentially an exemption of the employer’s share of Social Security taxes on wages paid to qualified new employees.
The Act, signed into law in March, allows taxable and tax-exempt organizations, including public colleges and universities, to take advantage of the payroll tax credit as of April 2010 – thus allowing for smooth implementation for payroll tax departments and the IRS to get the program up and running. Although not retroactive, Congress provided that the credit that would have been available in the first quarter of 2010 can be credited against the employer’s general OASDI (Social Security’s Old-Age, Survivors, and Disability Insurance) liability for the second quarter.
This significant tax incentive is available now, and can be attained simply by the following:
Hire a Qualified Employee - A qualified employee is one who has not worked more than 40 total hours in the 60 day period prior to commencing new employment.
- The new employee must be hired between February 3, 2010 and before January 1, 2011
- The new employee cannot be hired to replace an existing employee, unless the existing employee willfully terminates employment prior to the new employee’s hire date
- The new employee cannot be related to the employer in any way – cannot be a family member, ancestor, in-law, or owner of 50% or more of the outstanding capital or stock
A qualified employee does include employees that were laid off in 2009 and had been receiving COBRA assistance for which the employer has been taking the COBRA premium assistance credit, and is subsequently rehired. See the IRS website (click here) for answers to this and other frequently asked questions.
Complete and Retain Form W-11 – The Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit is now available on the IRS website (click here for Form W-11). This form certifies that the employee has been unemployed during the qualification period. The employer must retain the signed document with payroll and income tax records to take advantage of the tax incentive – they do not get filed with the IRS.
Apply the credit to the Quarterly Payroll Tax Return – Form 941, which has been revised for 2010, calculates the payroll tax exemption on lines 12c through 12e. Refer to your Marcum LLP representative for assistance in calculating your first and second quarter credits properly. Note that the employee’s portion of Social Security will still be withheld from income as usual, and Medicare Taxes remain unchanged. Future Social Security benefits for the employee will not be affected by this incentive. Most businesses are eligible for this credit, while household and government employers are ineligible.
Don’t Forget - The New Hire Credit
Businesses should also take advantage of this credit still available for each previously unemployed new hire that is retained for at least one year. The new hire retention credit is $1,000 per employee and may be claimed on 2011 tax returns.