In the previous post, I briefly discussed the basics of the Hiring Incentives to Restore Employment Act (HIRE Act) and the related payroll tax exemption and tax credit. In this post, I’ll discuss some of the IRS’s new guidance on these issues.
Relevant Dates for the Payroll Exemption: Provided all of the conditions for the payroll tax exemption are met, the exemption applies to wages paid between March 19, 2010 and December 31, 2010. It is important to note that this applies to when the wages are paid, not when the wages are earned by the employee.
Form W-11 Issues: The unemployed individuals who are hired as new workers under the HIRE Act must sign an affidavit, also called a Form W-11. The form does not have to be notarized or sent to the IRS, but it should be kept on file by the employer. An employer may also accepted an electronic version of this form, provided that it is properly signed with an electronic signature. If the IRS requests copies, an employer needs to be able produce a hard copy of the form.
An employer must have received the W-11 form by the time it files its employment tax return applying the payroll exemption. If the employer receives the form after it has already paid wages to the employee, it can still apply the exemption, but it may need to provide a corrected return.
Temporary agencies: Temporary employment agencies may claim the payroll exemption if they meet the requirement that they had not been employed for more than 40 hours during the 60-day period before employment with the temporary agency.
Election Out of Exemption: An employer may choose not to apply the payroll exemption. No opt-out is required, the employer should just report and pay its share of payroll tax as usual
Retention tax credit: An employer may claim the retention credit of up to $1,000 dollars even if it has also claimed the Work Opportunity Tax Credit (WOTC) and has opted out of the payroll tax exemption.
The additional information provided by the IRS is, of course, somewhat complex, so before taking any actions I would encourage you to speak to an attorney or tax professional.