New tax benefits are available to employers who hire workers who were previously unemployed or only working part time. They are part of the Hiring Incentives to Restore Employment (HIRE) Act.
Employers who hire unemployed workers this year may qualify for a 6.2 percent payroll tax incentive, essentially exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced withholding will have no effect on the employee’s future Social Security benefits, and employers will still need to withhold the employee’s 6.2 percent share of Social Security taxes, as well as any income taxes. The employer and employee’s shares of Medicare taxes will also still apply to these wages.
Also, for each worker that is 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.
The benefits are especially helpful to employers who are adding employees to their payrolls. New hires that fill existing positions will also qualify but only if the workers they replace 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 new hire that certifies that he or she was unemployed during the 60 days before beginning work, or that they worked less than a total of 40 hours per week for someone else during the 60-day period.
All forms of businesses, tax exempt organizations, and higher education institutions qualify to claim the payroll tax benefit for eligible newly-hired workers. However, homebased employers cannot claim this benefit.
Employers can claim the payroll benefit on their quarterly filed federal employment tax return. Eligible employers will be able to claim the new incentive on their revised employment tax form for the second quarter of 2010. Further details will be posted on the IRS website.