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HIRE Act

Tax Breaks for Employers Who Hire Unemployed Workers

On March 18, 2009, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act, (Public Law No. 111-147), which, among other things, offers a tax break for employers who hire employees who have been unemployed for the preceding 60 days.

The law provides that private employers who hire previously unemployed workers between February 3, 2010 and December 31, 2010 may qualify for a 6.2% payroll tax incentive. Essentially, this incentive exempts employers from paying Social Security taxes on wages paid to these employees after March 18, 2010. The law applies to businesses, agricultural employers, tax-exempt organizations and public colleges and universities.

Employers must obtain an affidavit from each unemployed worker who is hired, stating that this person has not been employed for more than 40 hours during the 60-day period ending on the date the person begins employment. Employees hired to fill existing vacancies qualify for the exemption as long as the employee the new hire is replacing separated from employment voluntarily or for cause. Family members and other relatives do not qualify.  

According to information on the IRS web site, the reduced tax withholding will have no impact on the employee's future Social Security benefits and employers must still withhold the employee's share of Social Security taxes as well as income taxes. Additionally, the employer and employee's share of Medicare taxes still apply to these wages. See "Two New Tax Benefits Aid Employers Who Hire and Retain Unemployed Workers,."

Additionally, for 2011,  The HIRE Act provides certain tax incentives for employers who hire "qualified employees" who have been unemployed for the preceding 60 days. Under the Act, a "qualified employee" is one who:

  • Begins employment after February 3, 2010 and before January 1, 2011;
  • Has not been employed for more than 40 hours during the 60-day period ending on the date the employee begins employment (including students or recent graduates);
  • Is not hired to replace another employee unless the other employee separated from employment voluntarily or for cause (including downsizing); and
  • Is not related to the employer.

Before an employer can claim HIRE Act benefits, the employer must obtain an affidavit from the employee certifying that he or she meets the definition of a "qualified employee" under the HIRE Act.

To assist employers in obtaining the required statement, the IRS has issued Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit. The IRS has also posted a series of Frequently Asked Questions (FAQs) and answers regarding the payroll tax exemption for newly hired workers and the related new hire retention credit. The FAQs can be accessed at the IRS web site, along with other HIRE Act materials.

To learn more about taking advantage of tax credits including new hire credits, please contact KPA partner Tax Break LLC or download a free white paper on the HIRE ACT.

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HIRE Act