Payroll and HR administrators need to take note and remember “part II” of the HIRE Act. As you recall, last spring Congress passed the HIRE Act to encourage businesses to bring on more employees. The Act went into effect March 18, 2010. It basically had two parts.
“Part I” allowed business to take an exemption from paying their share of the Social Security tax (6.2%) on all new hires. The Act stipulated that any individual hired between Feb 3, 2010 & Jan 1, 2011 that had not worked for 60 days prior to being hired was eligible. New employees had to sign an affidavit stating they had not worked in 60 days. Businesses could take the exemption on paying their share of the social security tax for the entire year of 2010. This part of the Act expired Jan. 1, 2011. All businesses were eligible, even seasonal businesses, and it resulted in hundreds of millions of dollars in payroll tax savings. The IRS did implement rules to avoid abuse of the law such as stipulating that a business could not let some one go and then turn around and hire a new person to replace them. Nor could a business get the tax break for hiring family members.
Businesses took the credit by paying in less payroll taxes. The tax exemption was then indicated on form 941 in order to accurately balance payroll tax liabilities due with payroll tax payments made. Note if you missed taking advantage of this tax exemption, you cannot do so retroactively.
Now that a year has passed, “Part II” is now kicking in. It allows businesses, for each qualified employee retained for at least 52 consecutive weeks, to be eligible for a general business tax credit, referred to as the new hire retention credit. The credit allowed equals 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.
Note that unlike the first part of the Act, this credit is not taken when filing payroll taxes. It is a business tax credit. Payroll and HR departments should work closely with the accounting dept. to make sure that the individuals filing company income taxes utilize the correct credit due.