Which employees qualify for the exemption and/or credit?
A qualified employee is someone hired from Feb. 4, 2010, to Dec. 31, 2010, who was unemployed, or employed for 40 hours or fewer during the 60-day period before the date he or she is hired. Employers may also be entitled to the exemption for amounts paid to a rehired employee as long as the rehired person is otherwise a qualified employee. Employees do not qualify if they are hired to replace another employee, unless the other employee quit or was terminated for cause. Family members or relatives of an employer do not qualify, either.
Employees must sign an affidavit with the new employer affirming that they have been unemployed, or underemployed, during the previous 60 days. They can either use IRS Form W-11 or the employer’s own affidavit, as long as it includes the same information as IRS Form W-11. The employer does not need to file or send signed employee affidavits to the IRS but should retain them with other payroll and income tax records.
In addition, to qualify for the credit, a qualified employee (as defined for purposes of the exemption) must remain an employee for at least 52 consecutive weeks. Also, the wages paid to the employee for the last 26 weeks must equal at least 80 percent of the wages that were paid to the employee for the first 26 weeks.
How can employers claim the exemption or credit?
The exemption is claimed on an employer’s quarterly U.S. Form 941. It reduces the amount that the employer must pay for quarterly employment tax.
The credit is claimed in the employer’s income tax return for the taxable year that includes the end of the 52-week period.
How does the exemption or credit affect other incentives?
The exemption and the credit can both be claimed relative to the wages paid to the same qualifying employee. However, while the Work Opportunity Tax Credit (WOTC) and the credit may be claimed for the same qualified employee, the WOTC may not be claimed in conjunction with a claim for the exemption.
Also, an employer may claim the COBRA premium assistance credit and the payroll tax exemption for new hires on the same employment tax return.
What else does an employer need to know about the HIRE exemption or credit?
The qualifications are fairly straightforward. As with anything to do with taxes, make sure you call your tax adviser to see if there are any nuances or to find out whether you can actually use the credit to save tax.
WALTER M. McGRAIL, JD, CPA, is a senior manager at Cendrowski Selecky PC. Reach him at (248) 540-5760 or [email protected].
