Friday, December 10, 2010

IRS Issues Form and Instructions for Hire Act Retention Tax Credit

The Hire Act retention credit was enacted by the Hiring Incentives to Restore Employment Act earlier this year.  The Act carried two valuable incentives for employers that boost payroll this year: 

   (1) A payroll tax exemption for employers that hire unemployed workers
   (2) An up-to-$1,000 tax credit for keeping such new hires on the payroll for at least one year

To qualify for these benefits, employers must hire individuals who satisfy the following criteria: 

   (1) Begins employment with the employer after Feb. 3, 2010, and before Jan. 1, 2011
   (2) Certifies by signed affidavit, under penalties of perjury, that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date employment begins with the qualified employer (use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, or its equivalent);
   (3) Does not replace another employee of the employer 
   (4) Is not related to the qualified employer 

The payroll tax exemption is taken on Form 941 for wages paid to qualified individuals from Mar. 19, 2010 and ending on Dec. 31, 2010.

In addition to the above stated requirements, to qualify for the $1,000 tax credit workers must:
   (1) Be employed by the employer for a period of not less than 52 consecutive weeks
   (2) Their wages for such employment during the last 26 weeks of the period must equal at least 80% of the wages for the first 26 weeks of the period. 

The amount of the credit per eligible employee is the lesser of $1,000 or 6.2% of wages paid by the employer to the qualified employee during the 52-week consecutive period. 

The new hire retention credit is claimed on the employer's income tax return.  

New form. The new form requires employers to enter the worker's Social Security number, the date the worker began employment, the worker's wages during the first 26 weeks of consecutive employment, and the worker's wages during the second 26 weeks of consecutive employment. This information will be used to calculate the credit.

The draft Form 5884-B can be viewed on the IRS website at

Source:  Federal Tax Updates on Checkpoint Newsstand tab 12/10/2010