From Sage's TechFlash:
On March 18, 2010, President Obama put his signature under the "Hiring Incentives to Restore Employment Act" (HIRE Act) H.R. 2847
. The HIRE Act encourages companies to hire unemployed workers by exempting certain wages from Social Security taxes and by providing employers with a tax credit if new hires are retained for at least 52 consecutive weeks. This legislation impacts companies of all sizes.
Specifically, an employer would be exempt from paying its share of 2010 Social Security taxes on any new hire who has been without full-time employment for at least 60 days. The maximum tax break an employer could gain per employee under this provision would be $6,621, or 6.2 percent of total wages paid in 2010 up to the $106,800 FICA wage cap.
On April 6, 2010, the IRS released Form W-11: HIRE Act Employee Affidavit
. Customers will use it to confirm that an employee is qualified under the HIRE Act.
Sage Abra monitors thousands of changes in local, state, and federal laws that affect our customers. We are fully committed to acting swiftly and to helping our clients navigate these changes. Sage Abra is currently working on implementing changes to our product offerings to help organizations comply with the HIRE Act. An upcoming release of Sage Abra will reflect these legislative changes.
These changes will include the ability to:
- Identify which employees are eligible for the tax credit
- Calculate the Social Security tax credit
- Produce the updated Form 941 for second quarter 2010
You will receive more specifics on the schedule and changes to the software prior to Quarter 2 2010 processing.
Synopsis of the Social Security tax exemption in the legislation that affects payroll:
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers-one for Old Age, Survivors, and Disability Insurance (OASDI, commonly known as the Social Security tax), and the other for Hospital Insurance (HI, commonly known as the Medicare tax). The FICA tax rate for employees and employers is 7.65% each-6.2% for OASDI and 1.45% for HI. There is a maximum amount of compensation subject to the OASDI tax ($106,800 in 2010), but no maximum for HI.
The HIRE Act provides certain employers with relief from their share of the OASDI taxes on wages paid to a "qualified individual." A qualified individual is anyone who:
- Begins work for a qualified employer after February 3, 2010, and before January 1, 2011;
- Certifies by signed affidavit (under penalties of perjury) that he was employed for a total of 40 hours or less during the 60-day period ending on the date the employment begins;
- Is not employed to replace another employee of the employer unless that former employee separated from employment voluntarily, or for cause; and
- Is not related to the employer (under rules similar to those in IRC §51(i).
The exemption would be available to any employer, other than a federal, state, or local employer (or government instrumentality). However, an employer that is a public higher education institution could claim the exemption. An employer could elect not to receive this payroll tax benefit.
The bill also provides a similar payroll tax benefit to railroad employers.
It is expected that the Social Security tax exemption would be reported on Form 941, Employer's Quarterly Federal Tax Return. The first quarter return (January 1 to March 31, 2010) must be filed by April 30, 2010. However, the bill does not allow the Social Security tax exemption to be claimed with respect to wages paid in the first quarter of 2010. The tax benefit that employers would have received in the first quarter of 2010 will be claimed in the second quarter of 2010 instead.
An IRS representative has stated that the IRS will be ready to make changes to Form 941 shortly after the bill is enacted.
The legislation calls for the employer Social Security tax exemption for qualified employers, as applicable, for wages paid to the qualified individual during the period beginning on the day after the date of the enactment and ending on December 31, 2010.