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Have you hired new employees this year, or are you considering growing your workforce?
If so, then you should know that on March 18, 2010, President Obama singed the Hiring Incentives to Restore Employment ACT, also known as the HIRE ACT into law. The ACT created two new tax benefits for “qualified employers’” who are hiring during 2010. These new tax benefits are a Payroll Tax Exemption for hiring “qualified employees” and an up to $1,000 Retention Credit for keeping those new hires for more than 52 weeks.
Who are “Qualified Employers”?
Qualified employers are any taxable businesses and tax-exempt organizations but do not include household or government employers. However, public colleges and universities may qualify for the payroll tax exemption.
Which employees qualify?
The ACT was written to provide a benefit to employers who hire those who were either unemployed or underemployed within the 60-day period before the employment start date.
Other eligibility factors include:
- Beginning employment after February 3, 2010 and before January 1, 2011,
- Underemployment is determined as working less than 40 hours during the 60 days before the employment start date,
- Not replacing another employee, except where the other employee terminated voluntarily or for cause,
- Not related to the qualified employer, and
- Obtaining a signed an employee affidavit, see below.
How much is the “Payroll Tax Exemption”?
The exemption is for the employer’s share of social security tax on all wages paid to qualified employees from March 19, 2010 to December 31, 2010. Therefore, the maximum tax break the employer can have per qualified employee under this Act is $6,621, or 6.2% of total wages paid in 2010 with a SS wage cap of $106,800 for 2010.
Employees are still responsible for their share of social security tax (6.2%) as well as any other applicable taxes.
What does your business need to do to claim the payroll tax exemption?
- Obtain and retain signed Form W-11 or similar affidavit from each qualified employee.
No need to file or send the affidavit to the IRS, just obtain the signed affidavit by the time the employer files an employment tax return applying the payroll tax exemption. If signed affidavit is obtained after wages are paid to the employee, the payroll tax exemption is calculated from that date forward and previous quarters may need to be amended to claim the exemption.
- Claim the payroll tax exemption for wages paid to qualified employees on Form 941, Employer’s Quarterly Federal Tax Return, beginning the second quarter of 2010.
- Indicate the new code CC on box 12 of the 2010 Form W-2 for these qualified employees.
What about the “New Hire Retention Credit”?
The Maximum $1,000 Credit is available for each qualified employee who is hired in 2010 and is employed for at least 52 consecutive weeks. To qualify for the credit the employee’s wages in the last 26 weeks of employment must be equal to at least 80% of the wages for the first 26 weeks of employment.
Claim the credit on the qualified employer’s 2011 income tax return. The credit is calculated as the lesser of $1,000 or 6.2% of wages paid to the retained qualified employee during the consecutive 52 week period.
Sources:
Internal Revenue Service, IRS.gov
RIA Checkpoint, Federal Taxes Weekly Alert Newsletter, 2010, Volume 56, No.19
For more information, please contact:
Linda Zheng | 215-564-1900 Back to News Archive
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