Taxes 101: Does Your Practice Qualify for a Payroll Tax Exemption?

Jennifer GoodrumFeatured News

July 19, 2010

Two new tax benefits are available to employers hiring employees who were previously unemployed or only working part-time.  In order to encourage employers to hire unemployed workers, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act on March 18.  The HIRE Act allows an exemption on the employer paid portion of social security payroll taxes (6.2%) for wages paid to new hires after March 18, 2010 and before January 1, 2011.

To qualify, the new employee must have been previously unemployed or working part-time and hired by the employer between February 3, 2010 and January 1, 2011. The employee must sign IRS Form W-11 ( certifying that they were unemployed or under-employed during the 60-days prior to beginning their new position.

Employers can claim the exemption for the employer paid portion of social security payroll taxes on the 2nd quarter Form 941 (  Use the 2nd quarter Form 941 to claim the exemption for both the 2nd quarter and the period from March 19 thru March 31 on qualifying employees.   The exemption for qualified wages paid subsequent to the 2nd quarter can be filed with the appropriate Form 941 for the quarter when the wages were paid.

Additionally, an employer can claim up to a $1,000 credit on any new employee retained for more than one year on their 2011 income tax return.