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HIRE Act tax breaks: Verify eligibility for newly hired employees

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in Hiring,Human Resources,Leaders & Managers,Management Training

The IRS has quickly moved to implement the new tax breaks for employers in the Hiring Incentives to Restore Employment (HIRE) Act.

Strategy: Have newly hired employees complete and sign Form W-11, the Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit. This new form is used to confirm that new hires are covered by the law. The final version of Form W-11 reflects the draft version issued in April.

Note that employers aren’t required to file Form W-11 with the IRS; nor do employees have to provide any documentation of unemployment. In effect, you’re operating under an honor system.

Nevertheless, keep the W-11s in your files.

Normally, an employer must pay the 6.2% Social Security portion of the FICA tax on an employee’s wages up to a specified annual amount ($106,800 for 2010). The 1.45% Medicare tax portion of the FICA tax applies to all wages. Under the HIRE Act, employers are exempt from this Social Security tax liability for wages paid to qualified employees from March 19, 2010, through Dec. 31, 2010.

An employer may claim this tax benefit for an employee who:

  • Begins employment with the business after Feb. 3, 2010, and before Jan. 1, 2011
  • Certifies by signing Form W-11 that he or she has not been employed for more than 40 hours during the 60-day period ending on the date employment begins
  • Is not employed by the employer to replace another employee unless the other employee separated from employment voluntarily or for cause
  • Is not related to the employer.

Note: Downsizing is included as an employment separation due to “cause.”

In addition, an employer may claim a tax credit if it continues to keep covered employees on the payroll for at least 52 consecutive weeks. The credit equals the lesser of $1,000 or 6.2% of the wages paid to the worker during the 52-week period.

Form W-11 asks the covered employee to provide his or her Social Security number, the name of the employer and the date employment began. The covered employee must sign and date Form W-11. Employers may use a similar statement that includes the requisite information and is signed under penalties of perjury.

Tip: The IRS has also revised Form 941, Employer’s Quarterly Federal Tax Return, to reflect the HIRE Act.

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