The HIRE Act Payroll Tax Credit - It's Not Too Late to Claim Your Credit for 2010

On March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act was enacted.  This legislation provided for two payroll tax credits related to the employer portion of the social security tax for qualified new employees hired between February 3, 2010, and January 1, 2011.  As we come to the close of the fourth quarter of 2010, now is the time to make sure that you have claimed the credit on all qualifying employees on your quarterly payroll tax returns (Form 941's) for the year.  It's not too late to claim the credit for the entire year.  In this post, I will provide details on the credits in the HIRE Act and how you can claim those credits.  

There are two credits in the ACT.  The first credit is a payroll tax credit on the employer portion of the social security tax (6.2% of the first $106,800 of wages for 2010) on wages for certain qualifying employees hired after February 3, 2010, and before January 1, 2011.  The second credit is available for employers who retain these qualifying employees for a continuous 52 week period.

The first credit is known as the payroll tax exemption and here are the details:

• Credit for the full employer portion of social security taxes on the qualifying employees.
• A qualifying employee:
  • Was unemployed or employed for 40 hours or less during the 60 day period prior to hiring.
  • Was not replacing another employee unless the other employee left employment voluntarily (quit) or was terminated for reasonable cause.
  • Includes employees straight out of school with no prior work experience or otherwise meeting the unemployment requirement above.
  • Does not include the hiring of family members or owners of a small business.  
  • Be careful with bringing contract labor type employees on payroll for this credit.  This will define those types of employees as always employees subject to withholding and payroll taxes from now on.  You can't just hire them for the credit and then reclassify them later as contract labor.
• Employees must sign a Form W-11 (http://www.irs.gov/pub/irs-pdf/fw11.pdf )prior to the date that the credit is claimed.  However, there is no requirement that a Form W-11 be signed prior to the date of qualifying wages.  Therefore, you can get your W-11's signed now and claim the credit for the past quarters after the signatures are obtained.
• The credit is claimed on the quarterly Form 941.  If you receive late Form W-11's you can file amended Form 941-X's ( http://www.irs.gov/pub/irs-pdf/f941x.pdf ) to claim the credit for those prior quarters.
• A Box 12 code has been added to report the qualifying wages for the HIRE Act employees on the 2010 Form W-2.  So you need to take care of this before the end of the year so you can have all the paperwork done for the 4th quarter and year-end tax payroll tax reports.

The second credit is know as the Business Credit for Retention of Certain Newly Hired Individuals:

• Claimed for the same HIRE act employees as the payroll tax exemption.
• The credit is calculated as the lesser of $1,000 or 6.2% of the wages paid by the employer to these employees.
• Credit can only be claimed after the employees noted above have been retained for a continuous 52 week period from the date of hire.
• The wages of these employees for the second 26 weeks of their employment must be at least 80% of their wages from their first 26 weeks of employment.
• The earliest date to claim the credit will be 2011 (at least 52 weeks from the beginning date of February 3, 2010).
• The credit is claimed on the employers 2011 income tax return.
• This credit is in addition to the payroll tax exemption above.  You get the first credit for hiring them and the second for retention.  It isn't an "either-or" situation.

So contact your payroll tax preparers and make sure that steps will be taken to get all the necessary information for these credits by year-end.  The first step is to identify the qualifying employees and then get their signatures on the Form W-11's.  Then you can amend those prior quarters and get your refunds now.  Good luck!

Comments

[David]

can you file 941-x now for 2010 employer oasdi credits from the HIRE Act?

In other words if there were people on my payroll that qualified for the credit can I go back and get it?

[Chip Cantrell, CPA, CHFP]

David, you can go back and amend the 941's and are only subject to the date rules for amending those forms.

In the instructions for the Form 941-X it states:

"Is There a Deadline for Filing Form 941-X?
Generally, you may correct overreported taxes on a previously filed Form 941 if you file Form 941-X within 3 years of the date Form 941 was filed or 2 years from the date you paid the tax reported on Form 941, whichever is later. You may correct underreported taxes on a previously filed Form 941 if you file Form 941-X within 3 years of the date the Form 941 was filed. We call each of these time frames a “period of limitations.” For purposes of the period of limitations, Forms 941 for a calendar year are considered filed on April 15 of the succeeding year if filed before that date.

Example:

You filed your 2009 fourth quarter Form 941 on January 27, 2010, and payments were timely made. The IRS treats the return as if it were filed on April 15, 2010. On January 20, 2013, you discover that you overreported social security and Medicare wages on that form by $350. To correct the error you must file Form 941-X by April 15, 2013, which is the end of the period of limitations for Form 941, and use the claim process."

Hope this helps. Have a great day!

Chip