With passage of the HIRE Act (Hiring Incentives to Restore Employment Act) last month, some employers are wondering how to take advantage of the tax breaks provided by the Act. The Act offers both a payroll tax exemption and a tax credit.
First, employers who hire certain unemployed workers after February 3, 2010, and before January 1, 2011, may be eligible for a payroll tax exemption of 6.2 percent. The IRS now has issued Form W-11, which employers must complete in conjunction with claiming the tax exemption.
Eligibility for the exemption depends on whether the new hire was previously unemployed for at least 60 days and did not exceed a Social Security wage base of $106,800. The employee also must sign an affidavit containing his or her name, Social Security number, first date of employment with the new employer, and the name of the employer. The purpose of the affidavit is to confirm that the hiring of the employee qualifies the employer for the tax incentive. Both the affidavit and the Form W-11 should be retained by the employer and not sent to the IRS.
Employers then claim the payroll tax exemption on their regularly filed Form 941, Employer’s Quarterly Federal Tax Return.
Second, the HIRE Act also provides that employers may be eligible for a $1,000 tax credit for each qualified previously unemployed employee who is hired and is retained for at least a year. That credit would be claimed by businesses on their 2011 income tax returns.
The IRS has posted Frequently Asked Questions and the final Form W-11 on its website.