TAX NEWS - June 2010

Oklahoma Tax: Tulsa - Employers hiring jobless can earn tax benefits

Q: I'm a small employer in Tulsa and am about to expand my staff. First, I need to know about new federal law that grants employers tax benefits for hiring the unemployed. — D.K., Tulsa.


A: You're referring to HIRE Act tax benefits for employers who hire unemployed people by the end of this year and the revised IRS Form 941 used for obtaining the benefits, said Internal Revenue Service spokesman David Stell.

HIRE Act: HIRE is an acronym for the Hiring Incentives to Restore Employment Act signed by President Barack Obama on March 18. See "IRS Form 941 for 2010: employer's quarterly federal tax return", "Instructions for Form 941 (revised April 2010)", and "Employers Social Security tax exemption."

Hiring benefits: "The benefits are effective exemption from employer's share of Social Security taxes, usually 6.2 percent of employee's wages plus a $1,000 per employee tax credit for certain employees kept on the payroll for a year or longer," Stell said.

Unemployed workers hired after Feb. 3 and before Jan. 1, 2011, may qualify their employers for the 6.2 percent payroll tax incentive, in effect exempting them from their employer's share of Social Security tax on wages paid to them after the bill's March 18 signing date. This reduction will have
no effect on the employee's future Social Security benefits. The employee's 6.2 percent share of Social Security tax and the employer and employee's shares of Medicare tax still apply to all wages.

Retention benefit: For each qualified employee retained at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax returns.

Claiming exemption: Form 941 will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. It does not allow an exemption for the last nine work days of the first quarter, but it may be claimed in the second quarter.

Signed statement: The act requires employers to get a signed statement from each eligible new hire certifying — under penalties of perjury — that he or she was not employed for more than 40 hours during the 60 days before beginning employment with the employer. Employers should see new Form W-11, "Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit," first available in May.

Though employers need this certification to claim both exemption and credit, they do not file these statements with the IRS. Instead, they must retain them along with other payroll and income tax records. These benefits are helpful to employers adding positions to payrolls.

New hires filling existing positions also qualify as long as they are replacing workers who left voluntarily or who were terminated for cause and otherwise are qualified employees. Family members and other relatives do not qualify.