IRS Distributes Payroll Tax Exemption Forms

Employers who hire unemployed workers this year (after Feb. 3, 2010, and before January 1, 2011) may qualify for a 6.2%-payroll tax incentive, in effect exempting them from the employer’s share of Social Security tax on wages paid to these workers after March 18, the IRS said. This reduction will have no effect on the employee’s future Social Security benefits or the employee’s 6.2%-share of Social Security tax, and the employer and employee’s shares of Medicare tax still apply to all wages.

In addition, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return, the IRS said. 

Meanwhile, Form 941, Employer’s QUARTERLY Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return. The form and instructions are now available for download on IRS.gov.

The HIRE Act requires that employers get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. Employers can use new Form W-11Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, to meet this requirement.

Though employers need this certification to claim both the payroll tax exemption and the new hire retention credit, they do not file these statements with the IRS. Instead, they must retain them along with other payroll and income tax records, the IRS said. 

More information about the tax exemption is at http://www.irs.gov/businesses/small/article/0,,id=220745,00.html.