The goal of the HIRE Act was simple: to help put certain previously unemployed Americans back to work. Companies may claim up to a US$6,621.60 credit for each eligible employee, which comes in the form of an exemption from the employer’s 6.2% share of social security tax on wages paid to eligible employees between 19 March 2010 and 31 December 2010.
Companies may also claim up to 6.2% of wages paid to a qualified employee over a 52-week period, up to a maximum credit of US$1,000 per qualified employee.
With a total maximum credit of up to US$7,621.60 per eligible employee, US companies should consider taking some simple steps now to help claim or maximize their HIRE Act benefits before the window closes on the Internal Revenue Service (IRS) filing deadline, aka Tax Day, which is 15 April 2014.
Perform a Retroactive Look Back
When the HIRE Act was first made available, it was evident that many companies didn’t claim the payroll tax exemption or retention credit available under it at all, and even more did not maximise its value. Eligible employees do not need to still be with the company today, although those that are likely qualify for the additional retention credit.
First, companies should identify all employees brought on-board during the HIRE Act’s eligibility time period of 3 February 2010 to 31 December 2010. According to internal ADP data, the eligibility rate for HIRE Act benefits across all industries was approximately 50%, so potentially half the employees hired during this time period may be eligible for the exemption or credit.
Next, determine which employees qualify for the payroll tax exemption of up to $6,621. Employees are eligible if:
- They began employment after 3 February 2010 and before 1 January 2011.
- They were unemployed or worked 40 hours or fewer during the 60 day period prior to being hired.
- They were not employed to replace another employee, unless the other employee separated from employment voluntarily or was terminated for a cause, and are not family members of, or related to, the employer.
- They can attest to these items on Form W-11 or a similar signed affidavit (can be electronically signed).
Note that employers cannot claim the Work Opportunity Tax Credit (WOTC) and the HIRE Act payroll tax exemption on the same employee.
Employees are eligible for the up-to-additional US$1,000 retention credit if:
- They attested to the statement on Form W-11.
- They stayed with the company for at least 52 weeks after being hired.
- Their second 26 weeks’ wage was at least 80% of their first 26 weeks’ wage.
Companies should consider setting up a standalone HIRE Act screening process for determining eligibility and enabling an electronic Form W-11 process for documenting qualified employees.
Claim the Credits Due
Once companies have identified all of their eligible employees, they’re ready to submit documentation to the IRS. To claim the standard HIRE Act credit, employers must:
- File a Form 941-X before 15 April 2014, for the second, third and fourth quarters of 2010.
- Distribute informational Form W-2cs to qualified individuals to notify them that the exemption is being claimed.
- Submit a comprehensive Form W-3c to account for incremental value.
To claim the additional employee retention credit, employers must:
- Complete Form 5884-B for each eligible employee, and flow the cumulative data up through Form 3800.
- These forms must be amended or brought in as an adjustment to their company’s 2011 tax return (and possibly 2010 tax return for fiscal year filers).
Value Propositions are Clear
If you’re considering whether the time and resources it will take to claim HIRE Act benefits are worth it, consider the following example. This value proposition is for a company that has not previously claimed HIRE Act credits and is based on a composite of industry key performance indicators.
Once 15 April 2014 comes and goes, companies will no longer be able to claim available HIRE Act benefits, so it’s clear that the time to act is now.
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