Despite the passage of the Hiring Incentives to Restore Employment Act, or HIRE Act, some employers are not taking advantage of the benefits afforded by the law. Since these benefits currently only apply to qualified individuals hired before January 1, 2011, employers should make every effort to avail themselves of the incentives available under the Act.

Under the HIRE Act, employers who hire unemployed workers before January 1, 2011 may qualify for a 6.2% payroll tax incentive, which will effectively exempt employers from their share of Social Security taxes on wages paid to such workers through the end of the year. Additionally, for each worker retained for at least a year, employers may claim an additional general business tax credit of up to $1,000 per worker when they file their 2011 income tax returns.

The HIRE Act’s incentives are available to any employer “other than the United States, any State, or any political subdivision thereof, or any instrumentality of the foregoing.” Additionally, the Act’s incentives only apply to wages paid to “qualified individuals.” Under the Act, a qualified individual means any individual who:

  • Begins employment with a qualified employer after February 3, 2010, and before January 1, 2011;
  • Certifies by signed affidavit, under penalties of perjury, that such individual has not been employed for more than 40 hours during the 60-day period ending on the date such individual begins such employment;
  • Is not hired by the qualified employer to replace another employee unless such other employee separated from employment voluntarily or for cause; AND
  • Is not “related” to the employer, which means the individual is not a child or descendent of the child, a sibling or stepsibling, a parent or ancestor of a parent, a stepparent, niece or nephew, aunt or uncle, or in-law. An employee is also considered related if he or she is related to anyone who owns more than 50% of the outstanding stock or capital and profits interest of the employer, or is a dependent of anyone who owns more than 50% of the outstanding stock or capital and profits interest.

Under the HIRE Act, businesses, agricultural employers, tax-exempt organizations, and public colleges and universities qualify to claim the payroll tax benefit for such newly-hired qualified individuals. However, household employers cannot claim the benefit.

The Internal Revenue Service created Form W-11, “Hiring Incentives to Restore Employment Act Employee Affidavit” for the purpose of allowing an individual to swear to his or her status as a qualified individual. Although an employee is not required to use this form to state, under penalty of perjury, that he or she is a qualified individual, it is recommended. Upon receiving a completed Form W-11, employers must retain it with other payroll and income tax records.

Employers can claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS, and they will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.

Although it is not yet clear precisely how the IRS will go about ensuring the proper use of the HIRE Act’s incentives, it is fair to say that those caught abusing the system by fraudulently taking the credits will be dealt with harshly. Accordingly, it would be wise for employers to proceed cautiously in this regard and make every effort to ensure compliance with the Act’s provisions.

According to the commissioner of the IRS, “these tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead.” Although these incentives will not operate to generate unnecessary hires, an employer whose business needs demand the hiring of a qualified individual would be wise to accept the incentives offered by the HIRE Act while they can.

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