HIRE Act: Two New Tax Reduction Benefits for Employers

The IRS late last week released an employee affidavit form that employers need in order to claim the tax credits available under the recently enacted Hiring Incentives to Restore Employment (HIRE) Act. The HIRE Act created two new tax benefits to employers who hire unemployed workers this year between Feb. 4, 2010 and December 31, 2010.

The first tax benefit is an exemption from the employer’s portion of social security taxes paid on wages to qualified employees paid from March 19, 2010 through December 31, 2010. 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 Medicare and income taxes.

The second tax benefit is a general business tax credit applied to the employer’s 2011 tax return, for retaining the qualified employee for at least 52 consecutive weeks. The general business tax credit is the lesser of $1,000 or 6.2% of wages paid to the qualified employee for the 52 consecutive weeks of employment.

A qualified employee is an employee who begins employment after February 3, 2010, and before January 1, 2011; is not hired to replace an employee unless the other employee separated from employment voluntarily or for cause; and is not related to the employer. In addition, 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 a total of 40 hours for someone else during the 60-day period. Employers can use the new IRS form W-11 to meet the certification requirements of the HIRE Act.

Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible. IRS.gov has more details.

Please contact StaffScapes to learn more about these two tax reduction benefits offered to employers through the recently enacted HIRE Act.