Alloy Alert - HIRE Act 2010

The HIRE Act, signed by President Obama on March 18, created two new tax benefits designed to encourage employers to hire and retain new workers. As a result, employers who hire unemployed workers this year (after February 3, 2010, and before January 1, 2011) may qualify for a 6.2 percent payroll tax incentive, in effect exempting them from the employer’s share of social security tax on wages paid to these workers after March 18. This reduction will have no effect on the employee’s future Social Security benefits, and employers still need to withhold the employee’s share of Social Security taxes, as well as Medicare and applicable income taxes. In addition, for each unemployed worker retained for at least a year, businesses may claim a new hire retention credit of up to $1,000 per worker when they file their 2011 income tax returns. The new law requires that employers obtain a statement from each eligible new hire, certifying under penalties of perjury, that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers can use Form W-11 to meet this requirement. Though employers need this certification to claim both the payroll tax exemption and the new hire retention credit, they do not file these statements with the IRS. Instead, they must retain them along with other payroll and income tax records. Employers use Form 941, Employer’s Quarterly Federal Tax Return, to claim the payroll tax exemption for eligible new hires. This form will be revised for use beginning with the second calendar quarter of 2010.

These two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify for either of these tax incentives.

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.

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