Posted on August 1, 2010

As part of the new Hiring Incentives to Restore Employment (HIRE) Act, employers—including nonprofits—may be eligible for tax breaks when they hire someone who was previously unemployed or only working part time. Generally, new hires beginning employment with your organization after February 3, 2010, and before January 1, 2011, who were either unemployed or worked 40 hours or less for anyone during the previous 60 days, can make your organization eligible for the credit. Your organization must get a Form W-11 or similar signed affidavit from new hires certifying they were not employed for more than 40 hours during the 60 days before beginning employment. Eligible employers may be able to claim two tax breaks.

First, eligible organizations may be exempt from their 6.2 percent share of social security tax on wages paid to qualified employees. This is known as the “payroll tax exemption,” and applies to wages paid from March 19, 2010, through December 31, 2010. Most employers will claim it on Form 941, Employer’s QUARTERLY Federal Tax Return, beginning with the second quarter of 2010. The exemption may also be claimed on annual payroll tax returns such as Form 944, Employer’s ANNUAL Federal Tax Return.

Second, eligible organizations may claim an additional general business tax credit, known as the “new hire retention credit,” for each qualified employee they keep as an employee for at least a year. The credit will equal 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000. The employee’s wages during the second half of the year must equal at least 80% of his wages during the first half of the year for the credit to apply. While most businesses can claim it on their income tax returns, usually in tax year 2011, the IRS has not yet released sufficient information to determine if or how tax-exempt organizations may be able to claim it.

Said IRS Commissioner Doug Shulman, “These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year.”


HIRE Act: Questions and Answers for Employers
FAQs About Claiming the Payroll Exemption
FAQs About Qualified Employees
Form to Claim Payroll Tax Exemption for Hiring New Workers Now Available