You knew it was going to happen. With so much revenue at stake, the IRS has begun correspondence audits of employers that claimed the 6.2% Social Security credit against wages paid to new hires under the 2010 Hiring Incentives to Restore Employment (HIRE) Act.
The IRS had indicated last year that it was developing a HIRE-related audit protocol. The audits track the HIRE Act’s criteria for claiming the credit, and ask employers to substantiate claims that they hired long-term unemployed individuals between Feb. 4, 2010, and Dec. 31, 2010.
• Under the HIRE Act, eligible new hires completed Form W-11 (or a substitute form) certifying that they were employed for not more than 40 hours during the 60-day period ending on their first day of work. Audit: Employers are requested to submit these forms.
• The credit applied to wages paid beginning March 19, 2010. Employers could reduce their tax deposits by the amount of the credit, which was claimed on their 941 forms. Audit: Employers must verify the amounts paid to eligible employees, and provide a list of the dates of their reduced tax deposits and copies of 941s on which the credit was claimed.
• Eligible new hires couldn’t be hired to replace current employees, unless the terminated employees were voluntarily separated from employment or were fired for cause. In addition, they couldn’t be related to the employer by blood or marriage, nor could they own more than 50% of stock in the business. Audit: Employers must confirm that information.