Throughout the week, we’re in contact with many prospects and customers of PCS and we have the opportunity to ask them if they’ve been taking advantage of the HIRE Act. In almost every case, we’re met with a blank stare and the response, HIRE Act? What’s that?
The HIRE Act is arguably the highest POSITIVE impact legislation for business launched in 2010. Eligible new hires are EXEMPT from Employer Social Security Tax for the 2010 tax year (for wages paid after March 18th of 2010) – a savings of 6.2% of eligible employee taxable wages.
However, most businesses aren’t aware the “holiday” on this tax is available. Indeed, even though PCS has sent out multiple notifications, only 25% of our customers have taken the steps necessary to take advantage of the savings which can be as much as $7,621.60 per eligible employee.
THE DETAILS
On March 18, 2010 President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act . The HIRE Act provides tax credits for employers willing to expand their workforce by hiring individuals who are unemployed or only working part time. This law provides two opportunities for tax savings:
- Social Security Tax Holiday – Employers who hire unemployed workers this year (after February 3, 2010 and through December 31, 2010) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding 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 income taxes. The employer and employees’ shares of Medicare taxes would also still apply to these wages.
- General Business Tax Credit* – In addition, for each worker retained for at least a year, businesses may claim a general business tax credit, up to $1,000 per worker, when they file their 2011 corporate income tax returns. The employee must be hired after February 3, 2010 and be employed for at least 52 consecutive weeks. Wages during the last 26 weeks must be at least 80 percent of the wages paid for the first 26 weeks.
*PCS does not apply this credit as it is a credit on your business tax return.
The credit is available for eligible new hires made between February 3, 2010 and December 31, 2010. All credits must be applied to 2010 check dates. The maximum credit for each employee is $6,621.60 (Social Security wage max $106,800 x 6.2%).
An employee is eligible if he/she:
- Begins employment between February 3, 2010 and December 31, 2010. Additionally, only the wages earned with a check date of March 19, 2010 to December 31, 2010 are eligible for the credit.
- Has not been employed for more than 40 hours during the previous 60 days. The individual must sign a W-11 Form Affidavit of Employment, under penalty of perjury, attesting to the employer this fact. To get the W-11 form, click here.
- Is not hired to replace another employee unless the previous employee was separated from employment voluntarily or for cause. Additional restrictions may apply for seasonal employment.
- Is not related to the employer in one of the following ways: son, daughter, or descendant of either; stepson or stepdaughter; brother, sister, stepbrother, stepsister; father, mother, or ancestor of either; stepfather or stepmother; niece or nephew; aunt or uncle; or the following in-laws: son, daughter, father, mother, brother, or sister.
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.
WHAT YOU NEED TO DO
1. Ask all new hires if they have worked for anyone more than 40 hours during the 60 day period ending on the day they began employment with you. If they have not worked during this time frame, have them sign the affidavit Form W-11 and keep it on file.
2. Look back at all new hires since February 3rd of 2010 that have received payroll checks dated after March 18th, 2010. Find out if they would qualify based on the above criteria and if so, have them complete the Form W-11. If you find that you have eligible employees, but have not been taking advantage of the HIRE Act, you will need to amend the affected 941 returns filed to date.
HOW TO CLAIM THE TAX EXEMPTION
If you are a PCS Client: Contact your Client Account Manager, they will guide you through the process.
If you are not a PCS Client: Form 941, Employer’s QUARTERLY Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The HIRE Act does not allow employers to claim the exemption for wages paid in the first quarter but provides for a credit in the second quarter. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return.
The HIRE Act requires that employers get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. Employers can use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, 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.
These two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify as long as they are replacing workers who left voluntarily or who were terminated for cause and otherwise are qualified employees. Family members and other relatives do not qualify for either of these tax benefits.
Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.
