On March 18, 2010, the President signed the Hiring Incentives to Restore Employment (HIRE) Act. This new jobs bill is intended to encourage employers to hire the unemployed. This special payroll tax exemption applies to all employers, even nonprofits. The HIRE Act creates two new incentives for hiring and retaining unemployed workers:
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The EMPLOYER does NOT have to pay the business’s share of the Social Security tax (6.2%) on the new employee for the rest of 2010, and
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The EMPLOYER gets up to a $1,000 tax credit for keeping the new hire on the payroll for at least one year.
Additional Details:
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A new hire will qualify if they were unemployed for 60 days prior to the hire date (or worked less than 40 hours in the entire 60 days).
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The new hire must be "new". The business just can't replace employees, unless the workers they are replacing left voluntarily or for cause.
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The new hire can not be a family member or relative.
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The new hire CAN be your spouse.
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There is no minimum weekly number of hours of work required of the new employee.
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The new hire will need to fill out and sign Form W-11 which states that they worked less than 40 hours in the prior 60 days.
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The Form W-11 must be retained by the employer, not sent to the IRS. If you "misplace" it, you will have a penalty of $7,622 per missing statement!
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The 6.2% credit is equally to the employer's share of the Social Security tax of the new employee. The employee share is still withheld from their pay.
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This will not have an effect on the employee's future Social Security benefits.
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The employer must still pay the Medicare tax on the wages paid to the new employees and all FICA taxes for old employees.
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The tax benefit has an immediate tax benefit on your cash flow since it will reduce the employer's payroll tax expenses.
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To encourage businesses to retain new hires or at least 52 consecutive weeks, the HIRE Act also provides a credit up to the lesser of $1,000 or 6.2% of the first $16,129.03 of wages paid. This credit will be claimed on the 2011 return.
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The maximum payroll tax credit that may be forgiven per employee is $6,622. The business saves 6.2% on both a $40,000 workers and a $90,000 worker. There is no maximum dollar amount of forgiveness per business; if you hire 5 qualified employees, your credit could be over $33,000!
I hope you find this information helpful. If you would like more details about these provisions, please call us at your convenience. You can read more at the IRS WEBSITE or download the FORM W-11.
