Two tax credits are available to employees who hire certain previously unemployed workers under the Hiring Incentives to Restore Employment Act (“HIRE Act”), which was enacted on March 18, 2010.
The first tax benefit provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees. This tax credit is available for wages paid from March 19, 2010 through December 31, 2010.
The second tax benefit provides that for each qualified employee employed at least 52 consecutive weeks, companies will be eligible for a federal business tax credit of 6.2 percent of wages paid to qualified employees, up to a maximum credit of $1,000.00.
On April 7, 2010, the IRS released a new Form W-11 to help employees claim the special payroll tax exemption under the HIRE Act. Most employees use Form 941(Employer’s Quarterly Federal Tax Return) to claim the payroll tax exemption for the new hires. The IRS intends to release a revised Form 941 this month.
Although employers need these forms to claim both the payroll tax exemption and new hire retention credit under the HIRE Act, they do not file these forms with the IRS. Instead, employees must retain them along with other payroll and income tax records.