The last piece of the puzzle needed to claim the special payroll tax exemption on qualified new hires just fell into place.
IRS just posted on its website the updated Form 941, Employer’s Federal Quarterly Tax Return, which employers will need for the new-hire retention credit created by the Hiring Incentives to Restore Employment (HIRE) Act.
The credit applies to workers hired between Feb. 3, 2010 and Jan. 1, 2011. These people must not have been employed for the prior 60 days, nor can they be family members or other relatives of the employer. New hires filling existing positions also qualify as long as they replace workers who left voluntarily or who were terminated for cause.
In return for hiring these new workers, the employer may qualify for a 6.2% payroll tax incentive that exempts it from paying its share of Social Security tax. This exemption applies to wages paid these workers after March 18, 2010. (Note: The exemption doesn’t apply to the employee’s share of Social Security tax. Also, Medicare taxes still apply to all wages.)
Retroactive credit
Employers can claim this credit on their Form 941 beginning with the second quarter of 2010. If you have the exemption for wages paid in the first quarter (i.e., March 18-31, 2010), you can take a credit in the second quarter. See the new Form 941 instructions (here) for details.
Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible.
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