Two New Tax Benefits Aid Employers Who Hire and Retain Unemployed Workers

The Internal Revenue Service has recently made available two new tax benefits to aid employers who hire and retain unemployed workers. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law today.

Employers who hire unemployed workers after February 3, 2010 and before January 1, 2011 may qualify for a 6.2% payroll tax incentive. This in effect exempts them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2% share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

These benefits are especially helpful to employers who are adding positions to their payrolls. Although, new hires filling existing positions also qualify, but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

The new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

This benefit does not apply to household employers.

For more information visit the IRS webite – HIRE Act: Questions and Answers for Employers.

Updated 6/24/2010 –
The IRS has released the form for reporting employees eligible under the new HIRE Act. Form W-11 needs to be completed by the employee and retained in your files. In addition, Form 941 has been revised for reporting eligible employees.

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