In March, 2010 the Hiring Incentives program to Restore Employment Act (H.I.R.E.) was signed. The purpose of the Act is to provide companies with a temporary tax break to help stimulate the recovering economy. This act has two key provisions:
First key provision:
A limited social security tax ‘holiday’ for the employer share of social security tax on wages paid to a qualified new hire.
A qualified new hire is any employee who:
- begins employment with a qualified employer after February 3, 2010 and before January 1, 2011.
- certifies in a signed affidavit (Form W-11), under penalties of perjury, that the employee has not been employed for more than 40 hours during the 60-day period ending on the day the individual begins work for the qualified employer.
- is not employed by the qualified employer to replace another employee unless the other employee left employment voluntarily or was terminated for cause and
- is not related to the qualified employer or to anyone owning 50% or more of the stock or other capital of the employer. (Family members and other relatives do not qualify)
Some examples of qualified employees cited by the IRS
- Rehired employee – an employee who was previously laid off and then rehired by the same or a related employer after a 60-day period can be a qualified employee.
- New employees replacing those laid off – If an employer lays off employees because of lack of work and later hires new employees when work picks up again, the new employees can be qualified individuals if they meet the other qualifications.
- Employees filling new positions – The employer can claim the social security tax relief even if the employer never laid off any employees, as long as it is filling new positions with qualified employees.
- Employees of a new business – An employer starting a new business can use the social security tax relief for qualified employees it hires.
Note: The reduction in tax withholding will have no effect on the employee’s future Social Security benefits. Employers will still need to withhold the employee’s share of Social Security taxes, as well as income taxes. This law has no effect on the employer and employee’s shares of Medicare taxes.
The Social Security tax ‘holiday’ cannot be taken in conjunction with the Work Opportunity Tax Credit (WOTC). No double-dipping. The WOTC is a federal credit that employers can take for hiring workers from specific target groups.
In other words, if the employer chooses to take the WOTC tax credit for a qualified worker, they cannot also take the Social Security tax ‘holiday’ relief.
Claiming the Social Security tax ‘holiday’ credit will require the employer to maintain an audit trail of documentation.
Qualified employers can elect to not take the social security employer tax credit. The employer can also make the election for each qualified individual, rather than taking the election for all qualified new hires.
Also, Federal, State or Local government employers and Household employers do not qualify.
Second key provision:
A separate business tax credit of up to $1,000 if an employee is employed for at least 52 weeks.
The H.I.R.E. Act also provides a separate business tax credit of up to $1,000 if an employee is employed for at least 52 consecutive weeks. The tax credit is equal to the lesser of $1,000 or 6.2 percent of federal wages paid to a RETAINED, QUALIFIED employee. An employee who meets the requirements for the Social Security tax holiday also qualifies for the business tax credit. The separate business credit may be claimed for each qualified worker when the employer files their 2011 income tax returns. 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.
Note: Claiming the Business Tax credit will require the employer to maintain an audit trail of documentation.
Balsamo, Stewart, Lutters & Ruth, PA can help you to take advantage of both the Social Security tax ‘holiday’ exemption as well as the business tax credit. For our current payroll clients, you will need to provide us with a completed copy of the new IRS Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit for each qualified employee. We will then identify and report social security exempt wages on the new IRS Form 941 and provide proper reporting on Form W-2.