As 2011 draws to a close, now is a good time to start reviewing all available tax credits to determine if implementation before year-end is warranted. One easily overlooked yet extremely powerful credit is the New Hire Retention Credit. This credit was included in the Hiring Incentives to Restore Employment Act of 2010 (HIRE), signed into law on March 18, 2010, and allows a credit up to $1,000 for each qualifying retained worker. HIRE does not limit the number of qualifying retained workers.
The credit applies to qualified employers for tax years ending after March 18, 2010, that hired and retained qualified workers during a consecutive 52-week period starting after February 3, 2010, and ending before January 1, 2011. The credit is the lesser of $1,000 or 6.2 percent of the employee’s wages paid for the consecutive 52-week period. Wages are defined as wages for income tax withholding purposes. In addition, the credit only can be claimed if the employee’s wages for the second consecutive 26-week period are not less than 80 percent of the employee’s wages for the first consecutive 26-week period.
To be a qualifying retained worker, the part-time or full-time employee:
- must begin employment after February 3, 2010, and before January 1, 2011
- must complete Form W-11 or a similar statement under penalties of perjury declaring that the employee was not employed more than 40 hours during the 60-day period ending on the hire date
- cannot be employed to replace another employee, unless the previous employee was terminated for cause (including downsizing) or voluntarily terminated
- cannot be a relative of the taxpayer employer
The credit is part of the general business credit under Internal Revenue Code Section 38(b) and is claimed in the period the consecutive 52-week period is first satisfied. For calendar-year taxpayers, this will be the 2011 tax year; for fiscal-year taxpayers, the credit can be claimed over two years. Form 5884-B is used to calculate the credit, and Form 3800 is used to claim the credit. Partnerships and S corporations calculate the credit, and pass it to the owners via Schedule K-1. No part of this specific credit can be carried back to any tax year beginning before March 18, 2010, although any unused credit can be carried forward 20 years.
For help determining the potential benefits of this or other credits for your business, contact your BKD tax advisor or e-mail Bryan Handley at [email protected].
Article reprinted with permission from BKD, LLP, www.bkd.com. All rights reserved.
