On March 18, 2010, President Obama signed the “Hiring Incentives to Restore Employment Act” (the “HIRE Act”), creating tax benefits for employers who hire unemployed workers in 2010. Under the HIRE Act, employers who hire unemployed individuals between February 3, 2010 and December 31, 2010 may be eligible for (1) an exemption of the 6.2% Social Security payroll tax contribution for that individual, and (2) an additional tax credit of up to $1,000.
Payroll Tax Exemption
The 6.2% payroll tax exemption applies to wages paid from March 19, 2010 through December 31, 2010 to a “qualified employee.” A “qualified employee” is an employee who:
- Is employed by the employer after February 3, 2010 and prior to January 1, 2011;
- Signs an affidavit, under penalty of perjury, that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the employer;
- Is not hired to replace another employee unless that other employee was terminated for cause or quit voluntarily; and
- Is not related to the employer (e.g., is not the son or daughter of the employer).
Employers eligible for the 6.2% payroll tax exemption will be able to begin claiming the new tax incentive on a revised employment tax form (to be issued by the IRS) for the second quarter of 2010.
The reduced tax withholding will not effect the employee’s future Social Security benefits, and employers would still be responsible for withholding the employee’s share of Social Security taxes (as well as income taxes). The employer and employee’s shares of Medicare taxes would also still apply to these wages.
On April 7, 2010, the IRS issued the final version of Form W-11, HIRE Act Affidavit, which employers will be able to use to satisfy the affidavit requirement described above. In addition, the IRS has posted frequently asked questions on the HIRE Act. The final Form W-11 and the frequently asked questions can be accessed by clicking here.
For each qualified employee retained for at least one year, employers may claim the “Retained Worker Tax Credit” (“RWTC”) which is equal to the lesser of $1,000 or 6.2% of such employee’s wages for the one year period. Therefore, for any qualified employee whose wages for such period are at least $16,130, the $1,000 tax credit will apply. To qualify, the wages paid to the employee during the last 26 weeks of the one year employment period must be equal to at least 80% of such wages for the first 26 weeks of the period.
The RWTC can first be claimed on employers’ 2011 income tax returns.
For more information on the HIRE Act, contact your SGR Executive Compensation and Employee Benefits counsel.