A new law for 2010, called the HIRE
Act, provides valuable incentives to companies that hire employees
who have been out of work for 60 days or more. Companies who hire
such long-term unemployed people don’t have to pay the employer
share of Social Security with respect to wages paid their new hires.
Wages paid between March 18th, 2010 and January 1, 2011
count towards this tax break, which the employer claims as a credit
on its federal payroll tax returns. If a company retains a new hire
for 52 weeks, and the employee’s
pay does not significantly decrease in the second half of the year,
the company can also claim a $1,000 tax credit on its 2011 tax
return, typically filed in 2012.
additional qualifications:
-
The employee must be hired after
February 3, 2010 and before January 1, 2011.
-
The employee cannot have worked
more than 40 hours total in the 60 days prior to being hired.
-
The new hire must not replace a
previous employee unless the old employee left voluntarily or
for cause. In other words, if you are hiring to replace someone
you just fired, you cannot claim the tax break for your new
hires. On the other hand, if you downsized earlier and are now
rehiring, you are eligible for the credit.
-
The employee may not be related to
the employer.
-
You cannot claim
HIRE Act benefits for hiring a nanny or other household
employee.
FORM
W-11
The IRS recently released a form to
certify that the employee that you are hiring has actually been out
of work for the past 60 days. The form,
Form W-11, asks for the new hire’s name, Social Security Number
and the date he or she began employment with you. The new hire must
sign the form. You, the employer, keep the form in your files. It
does not get sent to the IRS.
FORM 941
The credit is claimed on Form 941, the
form used to pay your quarterly payroll taxes to the IRS. The credit
is just for the employer portion of social security taxes. The
employee must still have social security taxes withheld and sent to
the IRS and both parties must still pay Medicare taxes. Your payroll
tax preparer should be able to help you with reporting and claiming
the HIRE Act payroll tax credit.
Work
Opportunity Credit
If you hire a welfare recipient,
veteran, disconnected youth, summer youth employee, or
ex-felon, among other members of “targeted groups”, your company may
qualify for a Work Opportunity Credit. You screen a new hire for
Work Opportunity Credit eligibility with this
questionnaire. You cannot claim both the Work Opportunity Credit
and the HIRE Act credit with respect to the same employee. If your
hire may qualify your company for multiple benefits we can help you
determine the best tax deduction.
As always, feel free to share any
questions you may have!