As many of you are aware the Hiring Incentives to Restore Employment (HIRE) Act was signed into law last month. The IRS recently had a call to help summarize the new legislation and some of the effects it has on the Payroll industry. Following is a recap of that meeting.
Date of Enactment : March 18th 2010.
Section 101 of the Provision – Payroll Tax Exemption
- Between 3/19/2010 and 12/31/2010, all wages for a qualified employee will be exempt from the 6.2% Employer share of Social Security tax. A qualified employee is defined as follows:
- Hired between Feb 3rd 2010 and Dec 31st 2010.
- Must be previously unemployed or employed less than 40 hours in the prior 60 days.
- Can’t be related to the employer.
- An employer can elect out of the exemption and elect to pay the tax.
- Employees must sign an affidavit under the penalties and perjury law.
- Affidavit model form will be online for employers to use – it will be retained by employers and not submitted to the IRS.
Section 102 of the Provision – Retention
- If a qualified employee is retained for 52 weeks then the company is eligible for an additional tax credit. This is designed to promote retention of the hired employees. To qualify for the additional credit the company must meet the following:
- Employee must be retained for 52 weeks.
- In the last 26 weeks of the 52 week retention period, the employee must earn at least 80% of the amount of wages they earned in the first 26 weeks of the 52 week period..
- The additional credit is the Employer portion of the Social Security tax paid on the qualified employee’s wages with a max of $1000.00.
- The credit can be taken on the employer’s 2011 Income Tax Return
- The IRS is allowing employers to reduce deposits by the amount of the exemption starting in 2nd Qtr.
- There will be changes to the 941 starting with 2nd Qtr 2010. The IRS is currently working on releasing this return
- A draft version is attached for your review. Please note Lines 6a through 6e, which address the Exempt employees
- These new lines will work as follows: If an EE is hired in late March and paid in April then they will be reported on line 6a. If an EE is hired in late March and paid in late March then they will be reported only in 6b.
- The IRS will also be modifying the 941 instructions to help ensure the lines are populated correctly.
- There will be changes to the 943 and 944 returns as well.
- A new 94x schema will be released by the IRS. This means there will be modifications to the 941 efile.
- Impact on the Schedule B – The liability will be reduced by the exemption of the SS-R.
- 1st Qtr – There will be no effect on the Schedule B
- 2nd Qtr – The liabilities will be reduced by 2nd Qtr credit amount but not the 1st Qtr amounts. The 1st Qtr amounts will be treated like a payment.
Work is underway to determine the best way to incorporate these new statutory requirements into our products. We will post additional information soon. If you have any questions, please feel free to call us at (877) 963-8729.