Employment/Tax-IRS Issues Revised Payroll Tax Form That Employers May Use To Claim Payroll Tax Exemption For New Hires

In Information Release 2010-64, the Internal Revenue Service (“IRS”) announces that it has issued a newly revised payroll tax form that most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010. The Information Release provides the following information pertaining to this revised tax form.

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 the employer’s share of Social Security tax on wages paid to these workers after March 18. 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 payroll tax exemption is claimed as follows. Form 941, Employer’s Quarterly Federal Tax Return, now 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 exemption may not be claimed for wages paid in the first quarter. The Form’s instructions explain how the exemption for wages paid from March 19 through March 31 can be claimed on the second quarter return.

The Information Release also reminds us that, to claim both the payroll tax exemption and the new hire retention credit, an employer is required to obtain a signed statement from each eligible new hire. In this statement, the new hire certifies, 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. An employer may use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month, to meet this requirement.