Thinking About Hiring?

In these tough economic times where unemployment figures are at levels not seen in numerous years, even decades, there are signs that businesses are starting to hire again. If you are one of those business owners thinking about hiring or who have hired recently, there are government tax breaks available that you should be aware of. The Hiring Incentives to Restore Employment Act (HIRE) was signed into law on March 18, 2010 and was designed to encourage employers to hire and retain new workers by creating the below incentives.

Payroll Tax Exemption

Employers who hire unemployed workers after Feb. 3, 2010 and before Jan. 1, 2011 are exempt from paying the employer 6.2% share of Social Security employment taxes on wages paid from Mar. 19, 2010 to Dec. 31, 2010 to newly hired “qualified” individuals. A “qualified” individual is one that meets the following criteria:

1. Hired between Feb. 3, 2010 and Jan. 1, 2011
2. Certifies by signed affidavit, under penalties of perjury, that they have not been employed for more
than 40 hours during the 60-day period ending on the date the individuals begins employment with
the qualified employer
3. Did not replace other employees of the employer unless the former employee left voluntarily or for
just cause
4. Is not related to the employer under special definitions

Form W-11 as posted on the IRS website can be used to meet this criteria of affidavit. From there, most eligible employers will use Form 941, Employer’s Quarterly Federal Tax Return, to actually claim the exemption. The certification is required to claim the payroll tax exemption; however, it need not be filed with the IRS. It should be retained with your payroll and income tax records.

It should be noted that this exemption will not affect the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2% share of Social Security taxes, as well as income taxes.

As a business owner, you may be asking yourself if you qualify for this credit or not. Non-eligible employers include household employers, federal, state, and local government employers, other than public colleges and universities. If you do not fall in this category, chances are that you do qualify but you should verify this with your tax advisor.

The following links are great resources published by the IRS:

www.irs.gov/pub/newsroom/marketing/print/hire-flyer.pdf
www.irs.gov/businesses/small/article/0,,id=220745,00.html


Employee Retention Credit

In addition to the above exemption, employers may also qualify for an up-to-$1,000 tax credit for retaining the above mentioned “qualified” individuals. The individual must be employed by the employer for a period of not less than 52 consecutive weeks, and their wages for such employment during the last 26 weeks of the period must equal at least 80% of the wages for the first 26 weeks of the period. This credit should be claimed on the employer’s 2011 income tax return.

The above issues can become convoluted, so please contact your tax advisor. Further, the IRS has issued guidance applicable to these tax breaks and can be a great resource for any employers who think they may be eligible.

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