Using the HIRE Credit

On March 18, 2010, the federal government enacted the Hiring Incentives to Restore Employment (HIRE) Act, which provides two new tax benefits for employers who hire certain previously unemployed workers, also called qualified employees. The first benefit is payroll tax exemption, and the second is a retention bonus.

The payroll exemption provides employers with a waiver of the 6.2% social security tax on wages paid to qualifying employees from March 19, 2010 through December 31, 2010. The employee is still responsible for his/her share of social security and Medicare tax. Employees must be performing services in the employer's trade or business, so household employees are excluded from qualification.

The HIRE retention credit provides the lesser of $1000 or 6.2% of wages paid to a retained qualified employee during a 52 consecutive week period. The wages for the last 26 weeks must equal at least 80% of the wages for the first 26 weeks. The credit applies to workers hired after February 3, 2010 and before January 1, 2011.

A qualified employee is an individual who has been unemployed or employed for 40 hours or fewer during the 60 day period ending with the date their employment begins. Typically, the new employee must not be replacing another employee or be a family member of the employer. A qualified employee must sign an affidavit that they have not been employed for more than 40 hours during the 60 day period ending with the date they started employment. The 60 day period must be continuous. A previous employee who was rehired may be considered a qualified employee, as could a student or graduate, as long as they meet the underemployment requirements.

Employers may claim either or both HIRE credits on their quarterly tax return using form 941.

Form w-11 may be used for the employee affidavit. http://www.irs.gov/pub/irs-pdf/fw11.pdf

For frequently asked questions on the IRS website, visit: http://www.irs.gov/businesses/small/article/0,,id=220745,00.html