Many may recall that back in 2010 the Hiring Incentives to Restore Employment (HIRE) Act of 2010 provided for an exemption from the employer’s portion of social security tax for eligible employees. This exemption was applicable through December 31, 2010 and was claimed on the Federal form 941 filing. Now, for tax year 2011, a second provision contained in the HIRE Act, the New Hire Retention Credit, can be worth up to $1,000 for each qualifying retained employee – without limit. If you hired eligible employees after February 3, 2010 and before January 1, 2011 and retained them for 52 consecutive weeks you may be eligible to claim the credit on your 2011 business income tax return.
To qualify for the new hire retention credit, the employee:
- Cannot be related to any owner or officer of the company.
- Before being hired, was either unemployed or only had part-time employment with someone else in the 60 days prior to being hired by you.
- Completed form W-11 under penalties of perjury declaring that they were not employed for more than 40 hours during the 60-day period ending on the date if hire.
- Was not hired to replace another employee unless the other employee was terminated for cause or separated voluntarily.
- Must have been hired after February 3, 2010.
- Was employed for 52 consecutive weeks at any time during the period from February 3, 2010 and January 1, 2011.
Further, if the wages paid in the second consecutive 26 week period are less than 80% of the wages paid in the first consecutive 26 week period, none of the wages paid are eligible for the credit.
The credit is equal to the lesser of 6.2% of the eligible retained worker’s wages or $1,000. Thus, if the wages paid to a qualified employee exceed $16,129 you will qualify for the maximum credit. The credit is considered a general business credit and is claimed in the period during which the 52 week consecutive period ends. Therefore, calendar year taxpayers will claim the credit for the 2011 tax year while fiscal year taxpayers may have to claim the credit over two years. The credit cannot be carried back to any tax year beginning before March 18, 2010 but can be carried forward 20 years.
If you claimed the new hire credit in 2010 there is a good chance you are eligible for the New Hire Retention Credit. How do you know if you claimed the new hire credit? Take a quick look at your 2010 quarterly 941 filings or call your payroll service provider.