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IRS Issues FAQs on HIRE Act Payroll Tax Exemption and Tax Credit

The IRS has recently issued additional guidance on the Hiring Incentives to Restore Employment Act (HIRE Act) and the payroll tax exemption and tax credit that goes along with it. The additional guidance takes the form of a set of FAQs that present answers to questions about eligibility and scope of the exemption, how the act functions with other tax breaks, and issues concerning documentation of a new employees work or unemployment history.

In this post I'll provide a little bit of information on the HIRE Act itself and who may be eligible, and in my next post I'll provide a little more on the specifics and highlights of the IRS's new guidance FAQs.

The HIRE act contains two components intended to be incentives for employers to hire additional workers and boost payroll. The first part is a payroll tax exemption for employers that hire unemployed workers. The second part is a tax credit with a value of up to $1,000 if the employer keeps the new hire on his or her payroll for at least one year.

The act generally applies to private employers, and the payroll tax exemption applies only to wages paid to "qualified individuals" between March 19th and December 31, 2010.

There are also a few limitations on who is considered a "qualified individual" under the HIRE act. Generally speaking, these individuals must begin employment with the employer after Feb. 3, 2010 and before Jan. 1, 2011; they must certify that they haven't been employed for more than 40 hours during the 60-day period before employment begins with the new employer; they must not be replacing another employee unless the other employee voluntarily left the job or was terminated for cause; and they must not be related to the employer in a way that would disqualify them from the Work Opportunity Tax Credit.

In addition, to qualify for the tax credit, employers must employ the new hires for at least 52 consecutive weeks and the employee's wages for the last half of that period must at least 80% of the wages for the first half of the 52 weeks.

Check back Friday for Part II.

Related Resources: New IRS FAQs Issued on HIRE Act Payroll Tax Exemption and Credit (Federal Taxes Weekly Alert)

 

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