2010 Payroll Hiring Incentives
Posted: 5/21/10
Dear Client,
There are new tax credits available for businesses hiring employees throughout the remainder of 2010. Proactive businesses can increase cash flow immediately by taking advantage of these credits.
Tax Payroll Tax Holiday
The above phrase sounds like an oxymoron, since there is nothing festive about payroll tax. However, businesses who hire an unemployed worker after February 3, 2010 are exempt from paying the employer portion of Social Security tax (6.2%) for the remainder of 2010. An unemployed worker is anyone who has worked 40 hours or less in the past 60 days. This payroll tax holiday is available to the entire private sector, including not-for-profits.
What are the rules?
- The employee must sign the IRS Form W-11 stating they have not worked more than 40 hours in the past 60 days.
- Employees qualify if hired after February 3, 2010. Wages are exempt March 19, 2010 through December 31, 2010.
- The employer must hire the employee for a new position, to replace someone who left voluntarily, or was terminated for cause or for other facts and circumstances, such as where a factory is closed due to lack of demand.
- There is no tax break for hiring family members with one exception. Spouses may qualify in certain circumstances.
- There is no minimum weekly number of hours the new employee must work.
- There is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
- The incentive is not biased towards low or high wage workers. The business saves 6.2% on the wages paid to the worker up to the $106,800 Social Security maximum for 2010.
- No double dipping with the Work Opportunity Tax Credit (WOTC). Claim one or the other.
- In some instances, especially with lower paid workers, the business may receive a larger benefit from the WOTC (6,000 * 40% = 2,400).
- Employers can hire graduates straight from school provided they did not work more than 40 hours during the prior 60 days; there is no minimum age requirement to be a qualified employee.
Additional Nonrefundable Credit for Retaining Employees
If a business hires an employee, as described above, and retains that employee for 52 consecutive weeks, the business can qualify for an additional nonrefundable credit. The credit is the lesser of $1,000 or 6.2% of the wages paid during that period. Also, the wages of the second 26 week period must be at least 80% of the first 26 week period.
Steps to Take
Businesses must examine all recent hires and future hires to see if they are qualified employees and have the proper IRS forms completed. In addition, businesses should track each new qualifying employee to see if he or she works 52 consecutive weeks to claim the employee retention credit on the 2011 tax return.
Please contact us and we will be happy to meet with you.