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CCH® PAYROLL — 05/25/10

IRS issues more guidance on HIRE Act payroll exemption

The IRS has posted on its website the newly-revised payroll tax form, Form 941, Employer’s QUARTERLY Federal Tax Return. Most eligible employers will use the form to claim the special payroll tax exemption that applies to many new workers hired during 2010. The form and its instructions are reproduced in this Report Letter on pages 11—22. The IRS website address is http://www.irs.ustreas.gov/formspubs/index.html. This is in response to the Hiring Incentives to Restore Employment (HIRE) Act, H.R. 2847, which was signed by the President on March 18, 2010 (see CCH Payroll Management Guide Report Letter 1310/2139, dated March 23, 2010).

Employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2% payroll tax incentive, in effect exempting them from the employer’s share of social security tax on wages paid to these workers after March 18. The reduction will have no effect on the employee’s future social security benefits. The employee’s 6.2% share of social security tax and the employer and employee’s shares of Medicare tax still apply to all wages.

Claiming the exemption

Form 941, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The HIRE Act does not allow employers to claim the exemption for wages paid in the first quarter but provides for a credit in the second quarter. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return.

The HIRE Act requires that employers get a signed statement from each eligible new hire, certifying under penalties of perjury, that he or she was not employed for more than 40 hours during the 60 days before beginning employment with that employer. Employers can use new Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, released last month (see CCH Payroll Management Guide Report Letter 2142, dated April 13, 2010), to meet this requirement. Though employers need this certification to claim the payroll tax, they do not file the statements with the IRS. Instead, they must retain them along with other payroll and income tax records.

Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible. (IRS News Release IR-2010-64, May 18, 2010.)

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