The US Government has been charged with the task of setting the American people back to work after the devastating effects of the financial crisis. The Government recognizes that massive unemployment only exacerbates the situation and so it has tried to come up with initiatives to stimulate employers to hire additional staff or to retain existing ones. The HIRE Act and the Payroll Tax Exemption are two such initiatives and the following questions provide answers to several consistently gray areas.
What is the HIRE Act?
The Hiring Incentives to Restore Employment (HIRE) Act was enacted on March 18th 2010 and will continue until December 31st 2010. This act is the umbrella under which the two employer incentives are held. The first pertains to the Payroll Tax Exemption which is awarded to employers who hire employees who were previously unemployed. The second, the New Hire Retention Credit, refers to a business credit which is awarded to employers who retain certain staff for 52 consecutive weeks.
What is the Payroll Tax Exemption?
The Payroll Tax Exemption gives employers an exemption from paying their 6.2% share of an employee’s social security tax during the period from March 18th to December 31st 2010. Both the employer and the employee must ensure they are qualified to receive this exemption.
Who are qualified employers?
Most companies, both new and existing, in all US Territories qualify for this tax exemption. Generally speaking, government employers do not qualify, although public institutions such as Colleges and Universities may qualify.
Who are qualified employees?
As long as the employee begins work after February 3rd 2010 and before January 1st 2011 they can qualify. The employee must also have been unemployed directly before getting this job for at least two months. In addition the employee should not be related to the employer in any way.
Do qualified employees need to do anything for employers to benefit under this new law?
Qualified employees need to prove that they were previously unemployed by swearing an affidavit under penalty of perjury. Form W-11 was created by the IRS to make this easy for the employer.
Are there any stipulations on when an employer cannot claim the tax exemption?
An employer does not qualify if they are already claiming the Work Opportunity Tax Credit (WOTC) on the same employee. The employer also cannot claim the exemption if the new employee was hired to replace an existing employee unless the old employee left voluntarily or was fired with cause.
What is the New Hire Retention Credit?
This is the second half of the HIRE Act and it relates to employers who manage to keep staff for 52 consecutive weeks. The New Hire Retention Credit is the same exemption of the 6.2% employer contribution (up to a limit of $1000) but it is rewarded only after the employee has been retained for the period and on the condition that the employee’s pay has not decreased significantly over the period.
How does an employer claim these benefits?
This tax exemption is claimed on the employer’s 2011 income tax return.
These frequently asked questions should significantly clear up any uncertainty surrounding these exemptions. For even more information you can consult the IRS website.
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