Many of our business partners have asked about the HIRE Act that was signed into law on 3/18 and its provisions. For those of you who need a refresher the info is below. Things to make not of the Social Security Tax Forgiveness is separate from the WOTC (work opportunity credit) so be sure and only take advantage of one; HOWEVER the Business Retention Credit can be received in combination with one of the above. Obviously consult with your accountant and IRS.gov for more information and there will be ongoing changes to the 941 tax form.
For those with more questions on how this will effect you and your hiring plan please let me know; I am more than happy to assist in taking calls or pointing you in the right direction.
These will be eligible at the end of your Q2 filings for those hired after 2/3/2010 the form should be out soon so be sure you are tracking the hire information.
Latest Legislation
The cornerstone of the HIRE Act is a federal program that will provide employers with incentives to hire and retain employees. HIRE will exempt an employer from paying the employer portion of Social Security taxes for the remainder of the year on new hires who are currently unemployed. If those workers stay on the payroll for at least a year, the employer would also get up to a $1,000 business tax credit per employee.
Social Security Tax Forgiveness
The 6.2% employer portion of the Social Security tax would be exempt for any qualified individual hired after February 3, 2010 and before January 1, 2011, for wages paid between March 19, 2010 and December 31, 2010 up to the $106,800 Social Security wage base.
A qualified individual meets the following requirements:
Begins employment with a qualified employer after February 3, 2010, but before January 1, 2011.
Has not been employed for more than 40 hours during the previous 60 days.
The individual must sign an affidavit attesting to the employer that he was not employed in the previous 60 days, or was employed for no more than 40 hours total.
Is not hired to replace another employee unless the previous employee was separated from employment voluntarily or for cause.
Is not a family member of the business owner.
An employer can save up to $6,622 in employer Social Security tax for each qualified hire. There is no limit to the total amount of tax benefits or hires during this period, so employers will receive greater tax benefits by hiring individuals earlier in the year.
Businesses, agricultural employers, tax-exempt organizations, and public colleges and universities all qualify to claim this tax benefit. Household employers cannot claim this tax benefit.
Note: The Social Security tax exemption can not be taken in conjunction with the Work Opportunity Tax Credit (WOTC). In other words, if the employer chooses to take the WOTC on a qualified worker, they cannot also take the Social Security tax exemption.
Business Credit for Retention
A business tax credit can also be claimed by the employer for each qualified individual hired after February 3, 2010 who stays with the employer for 52 consecutive weeks. This business credit will be the lesser of $1,000 or 6.2 percent of the wages paid by the employer to the retained worker during the 52 consecutive week retention period.
For the employer to claim this additional credit, wages paid during the previous 26 weeks must equal at least 80% of wages during the first 26 weeks of employment.
IRS Guidance
The IRS is issuing guidance as quickly possible on the many tax deposit and reporting issues created by the Act. Here is what is known so far:
The credit is for eligible employees hired after February 3, 2010, but only wages paid between March 19, 2010 and December 31, 2010 are eligible.
A new Form 941will be updated to account for the tax credits beginning with the second quarter form. First quarter wages and credits will also be reported on the second quarter form.
Employers can reduce their federal deposit amounts throughout the quarter by the eligible employer Social Security tax amount, or they can wait to claim the credit on their 941 return.
This payroll tax relief applies only to wages paid with respect to employment during the period from March 19, 2010 to Dec. 31, 2010. Employers may not claim a Social Security tax exemption on new hires who were first paid wages between Feb. 3, 2010 and March 18, 2010. The Social Security tax exemption will be reported by many employers on Form 941, Employer’s Quarterly Federal Tax Return. The exemption earned for the period from March 19, 2010 to March 31, 2010 may not be claimed on the first quarter Form 941. The tax benefit that employers would have received in the first quarter of 2010 will be claimed on the second quarter Form 941 instead. The IRS has issued a draft version of a revised Form 941 that would be effective beginning with second quarter returns due on Aug. 2, 2010
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4 comments:
Nice blog. Tax planning certainly does not get any easier as the business grows. Small business tax is hard to handle during the year ending. It is good to know how to hire and recruit employees.
Question: If a business doesn't impliment the HIRE act until, say.. now (June), can they go back and use the exemption to get back the social security tax per qualified employee?
It will mold the entire American Hiring system into a better one. The benefit of $1000 retention credit and multitudes of tax refunds and others are all a plus! It is a complete win-win situation for everyone. Small business' payroll service will be smooth and free-flowing because the rule is clear and literal. Understanding it is easy for the majority of the Americans, no deep terms and legal terms. Well explained! It is all about cleaning up our system on hiring and payroll. Colorado unemployment rate will go down and the lives of our people will improve. Glad that we are accessing our account online, payroll service have turned easier and faster. So through this blog, may people have read this post faster than a tabloid on the street. Thanks!
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