The HIRE Act – Basics Non-Profits Should Know

The "Hiring Incentives to Restore Employment Act" (HIRE Act) was signed into law by President Obama on March 18, 2010. The law includes temporary tax breaks for commercial businesses and nonprofits that hire workers who have been unemployed for at least 60 days.

Hiring Incentives

The HIRE Act provides $13 billion in tax incentives to private businesses and nonprofits that hire unemployed workers. Employers can receive an exemption from social security payroll taxes for every qualified worker hired after February 3, 2010, and before January 1, 2011 for wages paid between March 19 and December 31, 2010. For new hires kept on the payroll for at least 52 weeks, employers may qualify for a tax credit for each retained worker of the lesser of $1,000 or 6.2% of wages paid during the 52-week period (this credit offsets tax, so is only applicable to nonprofits having UBIT (Unrelated Business Income Tax)).

The payroll tax forgiveness provided in the law does not apply to the Medicare portion of the tax. Also, the new employee cannot displace a current employee unless that employee quit or was fired for cause. Relatives of the employer are not considered qualified employees for these tax breaks. There is no requirement that the employee have been employed in the past, so high school and college students may qualify.

IRS Issues Revised Forms

In response to the HIRE Act; the IRS released new Form W-11, Employee Affidavit, which covered employees can use to certify that they meet the criteria of the HIRE Act. They also revised Form 941, Employer’s Quarterly Federal Tax Return, and Forms W-2, Wage and Tax Statement, and W-3, Transmittal of Wage and Tax Statements.

Form W-11

The new law requires that employers get a statement from each eligible new hire, certifying under penalties of perjury, that the individual has not been employed for more than 40 hours during the 60-day period ending on the date the individual began employment. Employers can now use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit. This form is available on the IRS.gov website.

Form 941

Form 941, Employer’s Quarterly Federal Tax Return, was also revised for the HIRE Act. The payroll tax exemption is claimed on Form 941 beginning with the second quarter of 2010. For wages paid to covered employees during the period of March 19 through March 31, 2010, the payroll tax exemption is claimed on the employer’s Form 941 for the second quarter of 2010.

Forms W-2, W-3

Employers that hire a covered employee under the HIRE Act must report the amount of Social Security wages and tips paid after March 18, 2010 for which the employer claimed a payroll tax exemption. Employers will report these amounts in Box 12 on Form W-2 using new code CC. The amount may not exceed $106,800 (the maximum Social Security wage base for 2010). The total of code CC is reported in new Box 12b on Form W-3. The total of deferred compensation amounts, previously reported in Box 12, is now reported in Box 12a on Form W-3.