There are two new tax benefits available to employers who hire previously unemployed (60 days or more – and these employees must file an affidavit).
The first benefit provides an employer who hires a previously unemployed person (some terms apply – for example it looks like hiring your relatives is a no-no) with a tax incentive for the employer’s share of Social Security taxes. (This is 6.2% savings)
While the implementation guidelines appear to still be in the works – we think you’ll claim the credit on your employment tax forms. Check with your us on whether the new HIRE act applies to your company and for the exact steps you’ll need to take to implement the act.
The second benefit will provide a general business tax credit for each eligible worker retained for at least a year. The credit amount may be up to $1,000 per employee and would be claimed on the 2011 employer tax returns.
Sage Software’s Explanation of The HIRE Act
Synopsis of the portion of the legislation impacting the payroll:
Social Security tax exemption
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors, and Disability Insurance (OASDI, commonly known as the Social Security tax), and the other for Hospital Insurance (HI, commonly known as the Medicare tax). The FICA tax rate for employees and employers is 7.65% each—6.2% for OASDI and 1.45% for HI. There is a maximum amount of compensation subject to the OASDI tax (i.e., $106,800 in 2010), but no maximum for HI.
The HIRE Act provides certain employers with relief from their share of the OASDI taxes on wages paid to a “qualified individual.” A qualified individual is anyone who:
- begins work for a qualified employer after Feb. 3, 2010 and before Jan. 1, 2011;
- certifies by signed affidavit (under penalties of perjury) that he was employed for a total of 40 hours or less during the 60-day period ending on the date the employment begins;
- is not employed to replace another employee of the employer unless that former employee separated from employment voluntarily, or for cause; and
- is not related to the employer (under rules similar to those in IRC §51(i).
- The exemption would be available to any employer, other than a federal, state, or local employer (or government instrumentality). However, an employer that is a public higher education institution could claim the exemption. An employer could elect not to receive this payroll tax benefit.
The bill also provides a similar payroll tax benefit to railroad employers.
It is expected that the Social Security tax exemption would be reported on Form 941, Employer’s Quarterly Federal Tax Return. The first quarter return (January 1 to March 31, 2010) must be filed by April 30, 2010. However, the bill does not allow the Social Security tax exemption to be claimed with respect to wages paid in the first quarter of 2010. The tax benefit that employers would have received in the first quarter of 2010 will be claimed in the second quarter of 2010 instead.
An IRS representative has stated that the IRS will be ready to make changes to Form 941 shortly after the bill is enacted.
The legislation calls for the employer Social Security tax exemption for qualified employers, as applicable, for wages paid to the qualified individual during the period beginning on the day after the date of the enactment and ending on December 31, 2010.
The Full IRS release is available here
