Dear Client:

During the first few months of this year, the federal government enacted a number of new laws that will impact your business.  Of the various pieces of legislation, the “Jobs Bill” (also known as the HIRE Act) requires your immediate attention.

One of the key provisions of the HIRE Act allows for the elimination of the 6.2 percent employer social security tax on wages paid to “qualified employees”. 

The definition of a “qualified employee” is any employee who:

1. is hired after February 3, 2010 and before January 1, 2011 (but only wages paid between March 19, 2010 and December 31, 2010 are eligible for the credit),
2. worked 40 hours or less during the 60 days prior to beginning work for your business, and who will sign a statement (Form W-11) to that effect,
3. is hired into a new position, or if the employee is a replacement, they must be replacing a voluntary termination or an employee that was terminated for cause, and,
4. is not related to the employer.

 

Form 941 has been updated to account for the tax credit beginning with this year’s second quarter form (due July 31, 2010).  Employers can reduce their federal deposit amounts throughout the quarter by the credit amount, or they can wait to claim the credit on their Form 941 return.

What you need to do now:

1. For any and all employees hired between February 3, 2010 and December 31, 2010, the employer needs to determine whether or not the employee fits the definition of a “qualified employee”, and obtain the employee’s signature on Form W-11 (which is retained by the employer).
2. The earnings of any “qualified employee(s)” on or after March 19, 2010 need to be identified and accumulated so that the reduction in the employer 6.2% social security tax can be calculated.
3. Beginning with the Form 941 for the second quarter of 2010, claim the elimination credit paid to “qualified employees”.  The Form 941 for the second quarter of 2010 is also used to claim those wages paid to “qualified employees” between March 19, 2010 and March 31, 2010.

 

An additional tax savings provision of the HIRE Act:

In addition to the elimination of the 6.2 percent employer social security tax on wages paid to “qualified employees”, the HIRE Act also provides for a one-time business tax credit of up to $1,000 per “qualified employee” if the “qualified employee” remains on your payroll for 52 consecutive weeks.  This tax credit is available to offset federal income tax of the business in the current tax year (or income tax of the owner if the business is a sole proprietorship, a partnership, or an S corporation).  Any unused credit cannot be carried back, but may be carried forward to future tax years. 

How we can help:

If FPB provides you with payroll check-writing services or if we prepare your Form 941, we will contact you directly about any new employees who may fit the definition of a “qualified employee”, and claim the appropriate credit.

If you use an outside payroll service (such as Paychex or ADP), we suggest that you contact that service to ensure that “qualified employees” are properly identified.

If you prepare your own payroll tax returns (specifically Form 941), we encourage you to contact us if you have any questions to ensure that the available tax savings are computed properly.  Also, if you use an in-house payroll software program (such as CBS or QuickBooks), make sure you utilize the updates available to identify and accumulate the data required for those who may be “qualified employees”.

Planning Point:

Remember to include the possible tax savings of the HIRE Act in your considerations of the cost and the need to hire an additional employee.  For example, a “qualified employee”, hired at a wage of $10 per hour for 25 hours per week would cost you $15.50 less per week (through December 31, 2010) as compared to an employee hired before the HIRE Act became effective.  If that “qualified employee” remains on your payroll for 52 consecutive weeks, the one-time business tax credit would potentially equal an additional tax savings of $806.

We appreciate the opportunity to be of service.

FPB will continue to monitor future legislative activity, and we will do our best to keep you informed of the relative provisions as they develop.  Please do not hesitate to contact us if you have additional questions about the HIRE Act or any other tax matter. 

CERTIFIED PUBLIC ACCOUNTANTS