HIRE act can provide tax savings for employers

Published 12:00 am Sunday, June 27, 2010

The Hiring Incentives to Restore Employment Act was signed into law on March 18. The HIRE Act provides for payroll tax forgiveness and a retained worker business credit for qualified new hires.

A qualified employee is one who:

4 Begins employment after February 3 and before January 1, 2011.

4 Has not been employed for more than 40 hours during the 60-day period ending on the date of employment. This fact must be certified by the employee by a signed affidavit. The IRS has created Form W-11 to serve as the affidavit.

4 Is not hired to replace another employee unless the other employee separated from employment voluntarily or for cause, including downsizing.

4 Is not related to the employer

4 Does not own more than 50 percent of the outstanding stock or capital and profits interest of the employer.

The payroll tax forgiveness provided by the HIRE Act is for the employer’s 6.2 percent share of Social Security taxes on wages of qualified employees.

The employer remains liable for Medicare payroll taxes.

The payroll tax forgiveness will be taken on the employer’s payroll tax reports. Any forgiveness applicable to wages paid during the first quarter will be taken as a credit on the second quarter payroll tax report.

Employers may take the payroll tax forgiveness into account when making payroll tax deposits.

Keep in mind that an employer may not claim the Work Opportunity Tax Credit for the same wages used to qualify for the payroll tax forgiveness.

The retained worker business credit provided by the HIRE Act is claimed on the employer’s income tax return as a general business credit. For the employer to be entitled to this new credit:

4 The qualified employee must be retained on the employer’s payroll for 52 consecutive weeks.

4 The wages paid to the qualified worker during the last 26 weeks of the 52-week qualifying period must be at least 80 percent of the wages paid during the first 26 weeks.

The amount of the retained worker business credit will be the lesser of $1,000 or 6.2 percent of wages paid by the employer to the qualified retained worker during the 52-week period.

Ginga MacLaughlin is a certified public accountant, a certified information technology professional, and a certified information systems auditor with the accounting firm Silas Simmons, LLP in Natchez. She can be reached at 601-442-7411.