HIRE Act – Question and Answer for Employers


Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (“qualified employees”).

The IRS has provided clarification to this act, which we would like to pass on to our clients. The tax benefits available to employers are likely to affect many of our clients. Please take a moment to review the question and answer portion below and keep the qualifications in mind during your hiring process.

 

Who are qualified employees?

Qualified employees are individuals who begin employment with a qualified employer after February 3, 2010, and before January 1, 2011, who have been unemployed or employed for 40 hours or less during the 60-day period ending on the date such employment begins, who are not employed by the qualified employer to replace another employee of that employer, unless the other employee separated from employment voluntarily or was terminated for cause, and who are not family members of or related in certain other ways to the employer.

If an employer hires a recent graduate who has been in school for some or all of the 60 days preceding the start of his employment, does the payroll tax exemption apply to wages paid to the employee?

Yes, if the employee is a qualified employee. It is not necessary that the individual was previously employed and has lost his or her job to be a qualified employee.

Is there a minimum age for qualified employees? Will high school summer hires and interns be considered eligible employees?

There is no minimum age requirement to be a qualified employee.

Is the 60-day period continuous, and can it span 2009-2010?

The 60-day period must be continuous and can span 2009-2010.

Does the payroll tax exemption apply to wages paid to an employee who was previously laid off and then rehired by the same or a related employer after a 60-day period?

Yes, if the new employee is a qualified employee (i.e., was employed for less than 40 hours during the prior 60 days).

If an employer lays an employee off because of lack of work and later, when work picks up, hires a new employee, can the payroll tax exemption apply to wages paid to the new employee?

Yes, if the new employee is a qualified employee (i.e., was employed for less than 40 hours during the prior 60 days).

Does the qualified employee have to work a set period of time for the employer to be eligible for the exemption?

Application of the payroll tax exemption does not require that a qualified employee be employed for a set number of hours or a set number of weeks.

What do qualified employees need to do for their employer to claim the payroll tax exemption?

Qualified employees must certify by a signed affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the 60-day period ending on the date they started employment. The IRS has provided a model affidavit that can be used for this purpose.

Click for link to affidavit: Form W-11

Is there a deadline for the employer to get the signed affidavit from the employee?

Yes, the employer must have the signed affidavit by the time the employer files an employment tax return applying the payroll tax exemption. If the employer obtains the signed affidavit from the qualified employee after wages are paid to the employee, the employer can still apply the payroll tax exemption to determine its liability on these wages. In some cases this may require the filing of a corrected return for a prior quarter.

For example, an employer hires an otherwise qualified employee who begins employment on March 1, 2010 and is paid wages in March. The qualified employee does not provide the signed affidavit until April 15, 2010. The employer can claim the first quarter credit on the second quarter Form 941 for the amount of the exemption with respect to wages paid to the qualified employee from March 19, 2010 through March 31, 2010 and can apply the exemption to wages paid to the qualified employee starting April 1, 2010, despite the fact that the employee did not provide the signed affidavit until April 15, 2010.

In contrast, if the otherwise qualified employee does not provide the signed affidavit until August 1, 2010, the employer may not claim the first quarter credit on the second quarter Form 941 for wages paid to the qualified employee from March 19, 2010, through March 31, 2010, and cannot apply the exemption to wages paid in the second quarter because the employer did not obtain the signed affidavit by the time it filed its second quarter Form 941. Instead, the employer must file a Form 941-X to correct the second quarter of 2010 if it wants to claim the first quarter credit and apply the exemption to the second quarter wages paid to the qualified employee.

How does the employer claim the payroll tax exemption for wages paid to qualified employees?

The payroll tax exemption is claimed on Form 941, Employer’s QUARTERLY Federal Tax Return, beginning with the second quarter of 2010.

Click for link to Form 941