,
Michael Wietrzychowski ,
Scott J. Wenner and
Morgen Cheshire 
Businesses that hire individuals who were previously unemployed or working only part-time may be eligible for two new tax benefits under the Hiring Incentives to Restore Employment (HIRE) Act:*
- Social Security tax forgiveness—the HIRE Act provides an exemption from the employer's 6.2% share of Social Security tax withheld on certain wages paid to these individuals in 2010.
- A retained workers tax credit—the HIRE Act provides a business tax credit up to $1,000 per new hire for each who is retained for at least one year.
These benefits are especially helpful for employers who are adding positions to payrolls, starting new businesses, or are using new hires to fill previously filled positions after a period of downsizing.
Social Security Tax Forgiveness
Employers paying wages to new hires from March 19, 2010 through December 31, 2010 may be eligible for Social Security tax forgiveness under the HIRE Act.
Specifically, the HIRE Act exempts employers from withholding their 6.2% share of the Social Security tax from the wages of qualified new employees—that is, workers who meet all of the following requirements:
- They are hired after February 3, 2010 and before January 1, 2011.
- They sign an affidavit (IRS Form W-11), which states that they have not been employed for more than 40 hours during the 60-day period prior to employment. (The 60- day period must be continuous and may span 2009 and 2010.)
- They are not hired to replace one of the employer's existing employees unless the person they replaced separated from employment voluntarily or for cause (including downsizing).
- They are not related to the employer. For this purpose, certain family members, shareholders and persons related to certain shareholders are considered related.
The worker need not have been previously employed and need not have lost his or her job. For example, a recent graduate who was in school for some or all of the 60 days preceding the start of his or her employment may qualify as a new employee.
Employers may claim the exemption on their federal employment tax returns. The IRS will release a revised Form 941 for this purpose.
Employers may elect to opt out of this exemption in order to claim the Work Opportunity Credit (employers may not claim both credits). Importantly, employers must still withhold the employee's 6.2% share of the Social Security tax, income taxes from the employee's wages, and its share and the employee's share of Medicare taxes from the wages of qualified new employees. The exemption has no effect on the employee's future Social Security benefits.
Retained Workers Tax Credit
The HIRE Act also provides that businesses may claim an additional general business tax credit on their 2011 income tax returns for each retained worker. Retained workers are individuals who meet all of the following requirements:
- They are qualified new employees (see the requirements above).
- They worked for the employer on any date during the taxable year.
- They are employed by the employer for at least 52 consecutive weeks in the taxable year.
- Their wages during the last half of the taxable year are at least 80% of wages paid during the first half of the year.
The retained workers tax credit is the lesser of $1,000 or 6.2% of wages paid during the 52-week period.
Footnote
* These tax benefits are also available for certain tax-exempt organization employers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.