FAQ about the HIRE Act01 Apr
As a follow up to my “Hiring Incentives to Restore Employment Act (HIRE)” post on March 25, 2010, I am sharing the Q&A’s from the IRS website on the HIRE Act. Additionally, the IRS released a draft of the new IRS Form W-11 (416), the affidavit individuals must complete to confirm that they are qualified employees under the new law that provides tax incentives for businesses hiring new workers. You can find a PDF version of the new Form W-11 in the RESOURCES section of our site. The HIRE Act affects many of our clients in Fort Myers, Cape Coral and the surrounding Southwest Florida communities, and I would encourage all employers to become familiar with this new act.
These are Q&A’s from the IRS website on the HIRE Act:
Q: Who are qualified employees?
A: Qualified employees are individuals who begin employment with a qualified employer after February 3, 2010, and before January 1, 2011, who have been unemployed or employed for less than 40 hours during the 60-day period ending on the date such employment begins, and who are not family members of or related in certain other ways to the employer.
Q: Do the qualified employees need to do anything to make it possible for their employer to claim the payroll tax exemption?
A: Yes, qualified employees must certify by a signed affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the 60-day period ending on the date they started employment. The IRS plans to issue a model affidavit that can be used for this purpose.
Q: Is the 60-day period continuous, and can it span 2009-2010?
A: The 60-day period must be continuous and can span 2009-2010.
Q: Does the payroll tax exemption apply to wages paid to a qualified employee hired to replace an existing worker whose employment terminated?
A: The payroll tax exemption does not apply to wages paid to an employee who is hired to replace an existing worker, unless the existing worker terminated employment voluntarily or was terminated for cause.
Q: Does the payroll tax exemption apply to wages paid to an employee who was previously laid off and then rehired by the same or a related employer after a 60-day period?
A: Yes, an employer may apply the payroll tax exemption to wages paid to a rehired employee who is otherwise a qualified employee.
Q: If an employer lays an employee off because of lack of work and later, when work picks up, hires a new employee, can the payroll tax exemption apply to wages paid to the new employee?
A: Yes, if the new employee is a qualified employee (i.e., was employed for less than 40 hours during the prior 60 days).
Q: Does the payroll tax exemption apply only if the employer previously laid employees off?
A: No, the payroll tax exemption can apply to wages paid to any qualified employee.
Q: If an employer hires a recent graduate who has been in school for some or all of the 60 days preceding the start of his employment, does the payroll tax exemption apply to wages paid to the employee?
A: Yes, if the employee is a qualified employee. It is not necessary that the individual was previously employed and has lost his or her job to be a qualified employee.
Q: What is the payroll tax exemption?
A: The payroll tax exemption is an exemption from the employer’s 6.2 percent share of social security tax on all wages paid to qualified employees from March 19, 2010 (the day after the date of enactment of the HIRE Act) through December 31, 2010. The employee’s 6.2 percent share of social security tax and the employer and employee’s shares of Medicare tax still apply to all wages.
Q: Which employers qualify for the payroll tax exemption?
A: Taxable businesses and tax-exempt organizations qualify for the payroll tax exemption. Such employers in U.S. possessions, such as Puerto Rico or the Northern Mariana Islands, that are subject to social security tax also qualify for the payroll tax exemption. Federal, State or local government employers generally do not qualify for the payroll tax exemption. However, public colleges and universities can qualify for the exemption.
Q: Does the payroll tax exemption apply to household employers?
A: No. The payroll tax exemption applies only to wages paid to a qualified employee performing services in the employer’s trade or business or in activities in furtherance of a tax-exempt organization’s exempt purpose.
Q: If an employer starts a new business, does the payroll tax exemption apply to wages paid to employees hired for the new business?
A: Yes, if they are qualified employees.
Q: If an employee laid off in 2009 has been receiving COBRA premium assistance, for which the employer has been taking the COBRA premium assistance credit, and the employer rehires the employee, can the employer take the payroll tax exemption under the HIRE Act for wages paid to the employee?
A: Yes, if the employee is a qualified employee.
Q: How does the employer claim the payroll tax exemption for wages paid to qualified employees?
A: The payroll tax exemption is claimed on Form 941, Employer’s QUARTERLY Federal Tax Return, beginning with the second quarter of 2010.
Q: How does the employer claim the payroll tax exemption for wages paid to qualified employees during the period March 19 through March 31, 2010 (the first quarter of 2010)?
A: The payroll tax exemption for wages paid during this period will be claimed on the employer’s Form 941 for the second quarter of 2010.
Q: Can an employer claim the COBRA premium assistance credit and the payroll tax exemption for new hires on the same employment tax return?
A: Yes.
Q: How does application of the payroll tax exemption to wages paid to a qualified employee affect the availability of the Work Opportunity Tax Credit with respect to that employee?
A: If an employer applies the payroll tax exemption to wages paid to a qualified employee, such wages paid to the employee during the one-year period beginning with the employee’s hiring date may not be taken into account for purposes of the Work Opportunity Tax Credit. An employer that wishes to claim the Work Opportunity Tax Credit with respect to a qualified employee can elect out of the payroll tax exemption with respect to wages paid to that qualified employee.
We will provide more information on the HIRE Act as well as other legislative changes affecting the tax law as developments occur. Please contact one of our CPAs in our Fort Myers, FL office if you have any questions regarding the HIRE Act and how it can help your business.
James M. (Jim) Rosa, CPA, PFS is the Principal in charge of the Tax Department at Hill, Barth & King LLC. Jim has worked as a CPA helping clients in Fort Myers, Cape Coral and other Southwest Florida communities for the last 23 years. He has been with Hill, Barth & King LLC, a top 75 accounting firm, since 1986.
13 Responses to “FAQ about the HIRE Act”
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Regarding the HIRE Act, The IRS states that qualified employees are individuals who BEGIN employment after February 3, 2010. They also state that a previously laid off employee (for over 60 days laid off, and not working anywhere else during that 60 days)who was REHIRED after the 60 day period is an eligible employee. This seems contradictory.
So, an employee who was laid off and called back to work, is also considered a NEW HIRE, according to the IRS, and according to IRS the day that are called back from their layoff is the day they BEGIN work for the employer? ( Not the day they were originally hired prior to their layoff)? Just trying to clarify. ??
“Beginning” employment does not look back to the date when they were first hired before being laid off. The beginning of employment for purposes of the HIRE Act is the first day an employee starts work after not working anywhere more than 40 hours during the 60-day period ending the day the employee begins employment. Therefore, a new employee who never worked for an employer can qualify as well as a former employee, as long as the 60 days of unemployment requirement is satisfied. Thanks for the inquiry, and I hope this helps.
What if I hire someone who has been working odd jobs (as a self-employed individual). Are they considered to have been unemployed? Does the hours test still need to be met (fewer than 40 hours per week for 60 days), if so?
You have asked a very good question. The law and the IRS guidance so far has not addressed the question of whether a self-employed person is considered to be “employed” for purposes of the HIRE Act. At this point, we believe it is a reasonable position that being self-employed is not being “employed”. Form W-11, the employee’s affidavit has the employee certify to the following statement: “I certify that I have been unemployed or have not worked for anyone for more than 40 hours during the 60-day period ending on the date I began employment with this employer.” We will keep your email address and let you know if there is further guidance on this question.
Please note, the 40 hour test is that the person hired has not been employed for more than 40 hours during the 60-day period ending on the date employment began. The test is not that the employee worked fewer than 40 hours per week for 60 days. Hope this helps.
My company has individuals attend a 2 week training/orientation process as a conditional employee. If they complete the process successfully, they are then offered employment with the last day of the 2 week orientation being their official “hire date.” Would these time at orientation constitute “working more than 40 hours” and therefore disqualify the employee as being eligible?
Thank you for your question. The “working more than 40 hours” relates to service as an employee. It sounds like the 2 week training/orientation is unpaid time. If so, then our view is the 2 weeks of training/orientation would not disqualify the person from the HIRE Act benefits. If they are compensated for the 2 week period of time and then are “hired officially”, then their hire date should be the date 2 weeks before. We hope this addresses your question. Please do not hesitate to contact us if you have further questions.
Does the position being filled have to be a newly created position or a fill for someone who left the company or do both qualify? Also, will the employee be penalized when they retire because we (the company) did not match their social security for this time period?
Qualified employees include those to fill a newly created position as well as replacing another employee as long as the former employee being replaced separated from employment voluntarily or was terminated for cause. So both scenarios you mention can qualify as long as the new employee is not replacing a former employee who was terminated without cause. The employee will not be penalized when they retire. Amounts are appropriated and will be transferred from the U.S. Treasury’s general fund to the Federal Old-Age and Survivor’s Trust and the Federal Disability Insurance Trust Fund equal to the revenue lost because of the payroll tax holiday. Hope this helps.
The HIRE Act’s definition of family members and other related party rules can be complicated. You ask if the husband of the president of the company can be hired and qualify. The answer is NO, if the President owns directly and indirectly more than 50% of the employer. However, the answer is YES, if the President owns directly and indirectly 50% or less of the employer. We would be pleased to address specific situations with you. The following provides more details on these employer/employee relationships that do not qualify for the HIRE Act tax benefits.
The “certain other ways” refers to those living with the taxpayer and certain related parties as defined in the tax law. The HIRE Act benefits do not apply to hiring a relative such as the qualified employer’s child or descendant of a child; a stepchild; sibling, stepbrother, or stepsister; parent or stepparent; niece, nephew, uncle or aunt; or in-laws.
If the qualified employer includes the following, then the person hired will not qualify:
1. A corporation, an individual standing in any of the above relationships to anyone who owns, directly or indirectly, more than 50% in value of its outstanding stock, after certain attribution rules.
2. A noncorporate entity, an individual standing in any of the above relationships to anyone who owns, directly or indirectly, more than 50% of the capital and profits interests in the entity considering attribution rules.
3. An estate or trust, a grantor, beneficiary, or fiduciary of the estate or trust, or an individual having any of the familial relationships described above to a grantor, beneficiary, or fiduciary of the estate or trust.
An individual unrelated to the qualified employer who is the employer’s dependent because he has the same principal place of abode and is a member of the employer’s household won’t qualify. If the qualified employer is a corporation, an individual who is a dependent of anyone who owns, directly or indirectly, more than 50% in value of the outstanding stock, won’t qualify. A dependent of a grantor, beneficiary, or fiduciary of an estate or trust that is a qualified employer won’t qualify.
As is often the case, the rules can be confusing. Please do not hesitate to contact us directly if you have a specific question that is not addressed by this response. Thanks again for your question and I hope you found our site helpful.
Regarding the Hire Act – does this Act apply to only full time and part time qualified individuals or does this apply to all positions (FT, PT, HT, PRN)? I haven’t seen anything from the IRS stating any of this.
Thank you for your question Laura. A qualified individual may be hired for any number of hours, full-time or part-time, since the benefits to the employer are tied only to 6.2 percent of any salary paid. No minimum or maximum number of hours is required although some coordination with employees with multiple jobs is required since prior unemployment must be shown. The qualified individual must certify that he or she was not employed for more than 40 hours during the 60-day period and, therefore, satisfies the criteria in the HIRE Act.
Another credit that you will want to keep in mind is the Retained Worker Credit – Employers that hire new workers who qualify for payroll forgiveness and keep them on the payroll for at least 52 consecutive weeks may be eligible for a tax credit for each of those qualifying employees.
I hope this explanation has answered your question. Please do not hesitate to contact me or any of the professionals in the Fort Myers, FL office of Hill, Barth & King LLC should you have any additional questions.
My previous place of employment sent me the W11 form after I resigned and left the company. Now, they have sent me the form and insist I sign it.
However, I had a part-time job before I worked for them and worked more than 40 hours. I have the impression that this prevents me from being a “qualified employee.”
This woman insists that I must sign the form even though I was employed before working for them. Is this woman just trying to get the tax break for the company or am I truly supposed to sign it?
By signing the W-11 you are certifying, under penalties of perjury, that you did not work more than 40 hours during the 60 day period before you started working for this company. Based on your statement of your situation, you cannot sign the W-11 since you worked more than 40 hours during the 60-day period ending on the date you began employment. You are not compelled to lie for anyone. Don’t sign it. Hope this helps and good luck with your future.