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Payroll Tax Forgiveness and the New HIRE Act

The Hiring Incentives to Restore Employment Act (HIRE) became law on March 18, 2010 and includes two valuable provisions for employers that hire unemployed workers.

Social Security Tax Exemption

Employers can save up to $6,622 per worker if they hire an employee after February 3, 2010 who has worked less than 40 hours during the 60-day period prior to employment. The tax exemption of 6.2% is applied to wages earned after March 18, 2010 and before January 1, 2011 up to the FICA wage base of $106,800.

$1,000 Business Tax Credit for Retained Workers

In addition to the social security tax exemption employers that keep these individuals on the payroll for at least 52 consecutive weeks may be eligible for a tax credit for each of those qualifying employees. The amount of the actual business tax credit is the lesser of $1,000 or 6.2 percent of wages paid during a 52-consecutive week period. This benefit generally would not be taken until filing 2011 income tax returns because of the 52 week prerequisite.

For both of these tax forgiveness incentives a qualified individual cannot displace a current employee unless that employee was separated from employment voluntarily or for cause which includes downsizing. Additionally, employees who are related to the employer or who directly or indirectly own more than 50% of the business are not eligible.

Employees must sign Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, or other similar statement certifying, under penalties of perjury, that he or she had not worked more than 40 hours during the 60 days prior to beginning employment. The employer must have the signed Form W-11 (or its equivalent) by the time it files an employment tax return applying the payroll tax exemption.

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