Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part-time. These are part of the Hiring Incentives to Restore Employment (HIRE) Act which was recently enacted.
Employers who hire unemployed workers after February 3, 2010 and before january 1, 2011 might qualify for a 6.2% payroll tax incentive; in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee's future Social Security benefits and employers would still need to withhold the employee's 6.2% share of Social Security taxes as well as income taxes. The employer and employee's share of Medicare taxes would also still apply to these wages.
In addition, for each worker 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.
The two tax benefits are especially helpful to employers who are adding positions. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.
The new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the sixty days before beginning work or that they have worked fewer than a total of 40 hours for someone else during the 60 day period. The IRS is currently developing a form employees can use to make the required statement.
Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.