What Employees Qualify for HIRE Act- Payroll Software

Washington, on March 18, 2010, passed a new law the HIRE Act (Hiring Incentives to Restore Employment). The enactment of the HIRE Act allows employers to claim two tax benefits. The tax benefit applies to workers hired after Feb. 3, 2010 but before Jan. 1, 2011. There is also a tax benefit for employers if the newly hired worker is employed for at least a year.

One payroll tax break involves the employer's 6.2% share of Social Security tax. If the employer has a qualified employee the employer will be exempt from their 6.2% Social Security tax through December 31, 2010. The benefit is allowed for wages paid March 19, 2010 through December 31, 2010.The new law does not apply to the employee's share of Social Security and Medicare or the employer portion of the Medicare withholding.

The second payroll tax exemption (hire retention credit) applies in the case of the newly hired worker that retained for at least a year. Businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.


Qualified employees consist of workers who begin employment after February 3, 2010, and before January 1, 2011, who have been unemployed or employed for less than 40 hours during the previous 60-day period. The 60-day period must be continuous and can span both tax years 2009-2010. Family members of the employer are not considered qualified employees.

Qualified employees span a large pool of workers. Qualified employees must work for a qualified. The payroll tax exemption applies to workers hired to replace an existing worker if that employee voluntarily terminated their position or was released for relevant causes. Employees previously laid off and later rehired after a sixty day period or if employers replace a laid off employee with a newly hired employee, these new workers are qualified for the payroll tax exemption.

There is no minimum age relating to the HIRE Act. High school or college students do qualify the employer for the tax exemption. The sixty day unemployment or part-time employment rule takes into account school attendance. In this case it is not necessary that the individual was previously employed and has lost his or her job to be a qualified employee.

For the employer's Social Security payroll tax exemption the employee is not required to have worked for any set number of hours, days or weeks. Employers should remember to qualify for the hire retention credit when they file their 2011 income tax returns the worker is required to have been employed for at least one year. The retention credit is worth up to $1,000.00.

Employees must certify by a signed affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the 60-day period ending on the date they started employment. The IRS plans to issue an affidavit which business owners can use for this purpose. The IRS will also be updating the 2010 Form 941 to reflect the payroll tax exemption for 2nd quarter 941 filing.