IR-2010-64, May 18, 2010
WASHINGTON — The Internal Revenue Service has issued the newly
revised payroll tax form that most eligible employers can use to claim
the special payroll tax exemption that applies to many new workers hired
during 2010.
Designed to encourage employers to hire and retain new workers, the
payroll tax exemption and the related new hire retention credit were
created by the Hiring Incentives to Restore Employment (HIRE) Act signed
by President Obama on March 18.
Employers who hire unemployed workers this year (after Feb. 3, 2010,
and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax
incentive, in effect exempting them from the employer’s share of Social
Security tax on wages paid to these workers after March 18. This
reduction will have no effect on the employee’s future Social Security
benefits. The employee’s 6.2 percent share of Social Security tax and
the employer and employee’s shares of Medicare tax still apply to all
wages.
In addition, for each qualified employee retained for at least a year
whose wages did not significantly decrease in the second half of the
year, businesses may claim a new hire retention credit of up to $1,000
per worker on their income tax return. Further details on both the tax
credit and the payroll tax exemption can be found in a recently-expanded
list of answers to frequently-asked
questions about the new law now.
How to Claim the Payroll Tax Exemption
Form 941,
Employer’s QUARTERLY Federal Tax Return, revised for use beginning with
the second calendar quarter of 2010, will be filed by most employers
claiming the payroll tax exemption for wages paid to qualified
employees. The HIRE Act does not allow employers to claim the exemption
for wages paid in the first quarter but provides for a credit in the
second quarter. The instructions
for the new Form 941 explain how this credit for wages paid from March
19 through March 31 can be claimed on the second quarter return.
The HIRE Act requires that employers get a signed statement from each
eligible new hire, certifying under penalties of perjury, that he or
she was not employed for more than 40 hours during the 60 days before
beginning employment with that employer. Employers can use new Form W-11, Hiring
Incentives to Restore Employment (HIRE) Act Employee Affidavit, released
last month, to meet this requirement. Though employers need this
certification to claim both the payroll tax exemption and the new hire
retention credit, they do not file these statements with the IRS.
Instead, they must retain them along with other payroll and income tax
records.
These two tax benefits are especially helpful to employers who are
adding positions to their payrolls. New hires filling existing positions
also qualify as long as they are replacing workers who left voluntarily
or who were terminated for cause and otherwise are qualified employees.
Family members and other relatives do not qualify for either of these
tax benefits.
Businesses, agricultural employers, tax-exempt organizations, tribal
governments and public colleges and universities all qualify to claim
the payroll tax exemption for eligible newly-hired employees. Household
employers and federal, state and local government employers, other than
public colleges and universities, are not eligible. |