Employers who hope to take advantage of a tax break signed into law last month must fill out a new form by the Internal Revenue Service to claim the payroll tax exemption.
The Hiring Incentives to Restore Employment (HIRE) Act, passed last month, was designed to encourage employers to hire previously unemployed workers or those who were working only part time.
Employers who hire unemployed workers after Feb. 3, 2010, and before Jan. 1, 2011, may qualify for a 6.2 percent payroll tax incentive, which has the effect of exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. Eligibility 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 HIRE Act requires that any new hires must certify by signed affidavit, under penalties of perjury, that they have “not been employed for more than 40 hours during the 60-day period ending on the date such individual begins such employment.” The employee affidavit, Form W-11, can be found on the IRS Web site.
From there, Form 941, Employer’s Quarterly Federal Tax Return, should be used to claim the payroll tax exemption. The form is now a draft, and the final form will be released in May.
The IRS does not want employers to mail the forms, instead instructing employers to retain them in their payroll records. Affidavits must be collected from each new employee to confirm that the new hires are qualified under the act. Employees must supply their name, Social Security number, first date of employment, and the name of the employer.
The HIRE Act also created a tax credit. For each unemployed worker retained for at least a year, businesses may claim up to $1,000 per worker on their 2011 income tax returns. The IRS has set up a frequently asked questions page on its site.
Jill Williams, president and CEO of HR Biz Partners, told the North Bay Business Journal, that roughly 10 percent of an employer’s gross wage can be covered by HIRE.
“That can be significant,” Williams said. “HIRE is pivotal because it’s subsidizing payroll taxes. It allows employers to hire with a little less trepidation.”
One business owner, Gary Grossich of Nickelodeon Pizza in Colton, California, told The Sun of San Bernardino, however, that he doesn't think the new law will spur hiring.
"You're not going to hire more people than you need because the government's going to give you a little kickback", Grossich said. "I don't see where this will have a big impact, especially on the small business level."