Hiring to get a boost with tax breaks for employers

With the economy crawling out of the shadows and showing signs of life again, so is hiring. We already learned that the U.S. economy posted its largest job gain in three years last month. And help is coming from the White House, too.

In a move to encourage recession-weary employers to step up their hiring efforts, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act in mid-March, 2010. Under HIRE, qualified employers will receive two important tax breaks for hiring and holding onto previously unemployed workers:

1) A payroll tax exemption - An exemption from the employer’s 6.2% share of Social Security tax on wages paid to qualifying employees from March 19, 2010 through December 31, 2010

2) A new hire retention credit – A general business tax credit, up to $1,000, for each qualified employee retained for at least a year

To support this hiring incentive and help employers claim the payroll tax exemption, the IRS has issued a draft form (“HIRE Act Employee Affidavit,” or “Form W-11”) to confirm that an employee is qualified. Keep in mind, though, that you can use another similar statement if it contains the same information as Form W-11.

The main purpose of this form is to get qualified employees to state, by a signed affidavit and under penalties of perjury, that they have not been employed for more than 40 hours during the 60 days prior to beginning employment with you.

Most eligible employers will then use Form 941, Employer’s Quarterly Federal Tax Return, to complete the payroll tax exemption claim – also available in draft form from the IRS.

And who is a “qualified employee,” you ask? That would be an individual who:

=> Starts working for you after February 3, 2010, and before January 1, 2011
=> Completes the signed affidavit
=> Is not replacing another employee unless that employee left voluntarily or for cause (such as downsizing)
=> Is not related to you

G.Neil will keep you informed about the HIRE Act and finalized versions of the related tax forms once they’re released. In the meantime, you can check out the FAQs on the IRS website.

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