Guest Article

(From the April 12, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

HIRE Payroll Tax Exemption Guidance

The IRS issued a set of Frequently Asked Questions and a new Form W-11 to enable employers to implement the OASDI tax holiday they are now provided for hiring a qualified individual under the Hiring Incentives to Restore Employment (HIRE) Act (P.L. 111-147).

New FAQs and Employee Affidavit

Qualified employers (i.e., taxable businesses, tax-exempt organizations, and public colleges and universities) are exempt from the employer's 6.2 percent share of the Old Age, Survivors and Disability Insurance (OASDI) tax on wages they pay to qualified individuals during the period from March 19 through December 31, 2010. A "qualified individual" is one who is hired in 2010 after February 3 and who, during the 60-day period ending on the employment date, was either unemployed or employed for no more than 40 hours. To obtain the tax holiday, the HIRE Act requires the newly-hired employee to certify, under penalty of perjury, that this unemployment or 40-hour requirement was satisfied.

Responding to the immediate effective date of the OASDI tax holiday, the IRS issued a set of Frequently Asked Questions. Among other things, the FAQS make clear that the rehire of laid-off employees (including laid-off employees for whom the employer is taking a COBRA premium assistance credit) can satisfy the requirements. The FAQs also confirm that, where an employer applies the OASDI tax holiday to wages paid to a qualified employee, the wages paid to that employee during the one-year period beginning with the employee's hire date may not be taken into account for the Work Opportunity Tax Credit. The employer can elect not to take the OASDI tax holiday with respect to that employee's wages, however.

The IRS also issued a new Form W-11 Employee Affidavit, by which newly-hired employees can certify that they were unemployed or did not exceed 40 hours of employment during the 60-day period ending on their hire date.

Most employers will use the Form 941 Employer's Quarterly Federal Tax Return to claim the exemption. The IRS is still in the process of revising that form; although a draft revised Form 941 was released.

The FAQ, Form W-11 Employee Affidavit and the draft revised Form 941 may all be found on the IRS web site at: www.irs.gov.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.