Employment/Tax-Congress Provides Two New Tax Benefits To Aid Employers Who Hire And Retain Unemployed Workers

In a News Release (IR-2010-33, March 18), the Internal Revenue Service (“IRS”) announced that two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law on Thursday, March 18.

According to the New Release, employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This incentive will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to the wages of these workers. In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

Further, the News Release says that, to be eligible for these tax breaks, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax incentive for eligible newly-hired employees. Household employers cannot claim this new tax benefit. Employers claim the payroll tax incentive on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive for retaining workers on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on IRS.gov during the next few weeks.