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President Obama signed the new Hiring Incentives to Restore Employment (HIRE) Act last month.  Under this new law, businesses who hire unemployed or underemployed workers during 2010 may be eligible for a payroll tax exemption. 

The HIRE Act allows for two specific tax benefits for businesses that hire and retain unemployed workers.  Businesses who hire unemployed workers may be eligible for a 6.2 percent payroll tax exemption for employees they hire after February 3, 2010 and before January 1, 2011.  This tax exemption covers the employer’s share of the social security tax that would be paid to employees hired after March 18, 2010.  The tax exemption does not affect the employee’s Social Security future benefits. The employee will still be required to contribute their 6.2 percent share of the Social Security tax.  Businesses that hire new workers, and are able to retain them for at least one year, may also be eligible for a new hire retention tax credit of up to $1000 per worker.  This tax credit will be available when organizations file their 2011 income tax returns. 

For the tax exemption to be claimed by the employer, employees are required to submit a certified statement verifying they were unemployed for at least 60 days, or fewer than 40 hours per week, before beginning employment.  To help employers, the IRS is providing a new Form W-11, to help employers meet this requirement.  While this certification statement is required to claim the tax exemption, it does not get filed with the IRS.  However, it is important for employers to retain the certified statement with other payroll and tax records.

Eligible employers will use Form 941 for claiming this tax exemption for newly hired employees.  Form 941 is being revised and will be available to employers for use during the second quarter of 2010.  The new form will be available at the IRS website for employers within the next month.

Other points of interest:

  • Any employer who plans to add new positions in 2010 can also benefit from this exemption. 
  • Employers who replace employees who left voluntarily, or for cause, may also be eligible for this tax exemption.
  • Family members of the employer are not eligible for these tax exemptions.
  • Organizations that are eligible to claim this payroll tax exemption are businesses, agricultural employers, tribal governments, tax-exempt organizations, public colleges and universities who hire new employees. With the exception of public universities and colleges, federal, state, and local government employers, as well as household employers, are not eligible.  For more information please refer to the IRS website.

    Organizations who may be feeling the pressure to increase staffing levels in 2010, may find this to be a good time to take advantage of this tax savings option while increasing employment.

This Business article was written by Kathy Clark on 4/10/2010

Kathy Clark is an MBA who is passionate about helping small business owners see their vision come to life through business development and growth. She writes for, and is the founder of The Thriving Small Business.