The recent Hiring Incentives to Restore Employment (HIRE) Act has two provisions designed to increase employment, a partial payroll tax exemption and a new hire retention credit. Both provisions require the employer to obtain from the new employee a signed Form W-11 (Employee Affidavit).
The payroll tax exemption provides for the elimination of the employer's 6.2 percent share of social security tax on wages paid to qualifying employees during the period from March 19, 2010 through December 31, 2010, which can be claimed through the filing of Form 941 starting with the quarter ending June 30, 2010. The new hire retention credit provides for an income tax credit of 6.2 percent of each new employee's wages paid during the 52 consecutive week period after being hired, up to $1,000 per employee, which can be claimed through the filing of the employer's 2011 income tax return.
For an employer to obtain these tax benefits, the employee must meet all of the following requirements:
• Must have started employment after February 3, 2010 and before January 1, 2011.
• Must have been unemployed or employed for not more than 40 hours during the 60-day period ending on the day of beginning employment.
• Cannot replace another employee, unless the prior employee separated voluntarily or was fired for cause (including downsizing).
• Cannot be a family member or related to the employer, be anyone that owns more than 50 percent of the employer, or be related to anyone who owns more than 50 percent of the employer.
• For purposes of the new hire retention credit, cannot be paid during the last 26 weeks of the 52-week period less than 80 percent of his or her wages during the first 26 weeks.
Qualifying employees can include recent graduates, as there is no requirement that the employee be previously employed or have lost a job. No minimum wage level is required. Qualifying employees must sign a Form W-11, or equivalent affidavit, affirming that the individual has been employed for not more than 40 hours in the 60-day period prior to beginning work with the new employer. The Form W-11, or other signed affidavit, is not filed with the Internal Revenue Service, but should be maintained by the employer with its payroll and income tax records.
The employer should have the executed Form W-11 by the time its Form 941 quarterly payroll tax return is filed (normally by July 30, 2010, for the second quarter). If the Form W-11 is obtained late, an amended Form 941 can be filed. If you have questions on these matters, please contact Gerald Cohen or Karen Kelly.