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  • Payroll Managers: Note Changes to 2011 Form 941

    payroll_changes_up_close

    The IRS made several tweaks and changes to Form 941, Employer’s Quarterly Federal Tax Return for 2011, and the updated form is now available. As you sit down to figure out your quarterly payroll taxes, here’s a quick look at the changes:

    Change in employee Social Security contribution rate for 2011. The tax rate for employees is now 4.2% for 2011 as a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The employer’s contribution rate remains unchanged at 6.2%. (Luckily, the updated form has a reminder about the reduced tax rate that you can’t miss.)

    A new line added for reporting tax due on tips that were unreported. Section 3121(q) Notice and Demand is a place for reporting Social Security and Medicare tax on previously unreported or under-reported tips. For more information, see instructions for Form 941, Section 5e.

    The qualified employer’s Social Security tax exemption, which expired on December 31, 2010, is no longer an option.

    The ending of the advance earned income credit. While the earned income credit is still available to taxpayers, the government eliminated the advanced option for earned income credit as of Dec. 31, 2010. Note: remind your employees that if they received the advanced EIC in 2010, they need to report this credit on their 2010 federal income tax return.

    COBRA premium assistance credit. If you helped a former employee on your payroll make their COBRA payments, you may qualify to take a tax credit.

    Electronic funds transfer for federal payroll tax deposits. By now, I hope you know about the requirement for employers to file all federal tax deposits electronically. if not, get up to speed by reading the previous blog article “Changes Ahead for Employers Making Federal Payroll Tax Deposits.

    A block of greyed-out lines (6a-d) “reserved for future use.” Sounds like another payroll mystery to be solved…

    Here is a link to the 2011 Form 941 and instructions for filling it out.

    If you have any comments about the new form, please feel free to share.

    Deadline Approaches to Electronically Submit W-2s for Payroll

    Are you ready to prepare your W-2s for 2015? If your payroll department is filing your Social Security wage file electronically, your deadline is fast approaching. Social Security has set the due date for electronic wage filers. Forms W-2 and W-3 must be submitted by March 31st.

    Who is required to file W-2s electronically?

    If you have more than 250 employees on your payroll, you must file electronically. However, any business owner can file electronically if they want, even if they have fewer than 250 employees. (In fact, the SSA would prefer it.) When you file electronically, make sure you do not also submit redundant paper forms to Social Security.

    How do I file electronically?

    You can sign up for an account at the SSA’s Business Services Online. The site will walk you through the steps of confidentially filing W-2s for everyone on your payroll. You need to install the Adobe Acrobat Reader (version 5 or later.) From there, you can manually submit your payroll information or upload an electronic wage file.

    Payroll software may save you time and help with accuracy when it’s time to prepare your W-2 forms. Try our convenient, affordable online payroll … and the first month is free!

    Article updated 11/17/2015

    Remember Payroll Tax Deadlines with Calendar Connector

    remember payroll tax deadlines calendar pictureAttention small business owners — the IRS has a new tool to help you remember not to forget to pay your taxes! If you have trouble recalling when to make your monthly payroll tax deposit, try the IRS Calendar Connector, a nifty little program you can download quickly from the IRS website. Calendar Connector will remind you of whatever tax deadlines you tell it to, including payroll tax deposit deadlines. You first need to download Adobe Air for the IRS program to work, but then you can be up and running in minutes. You can even check in with the Calendar Connector when you’re offline.

    Tailor Your Payroll Tax Deadlines Calendar

    Tailor the program settings according to your own business needs. For example, are you a monthly or bi-weekly depositor for your business payroll taxes? Do you need to remember the date that your 1099s are due, or when to file the 1040 (as if you could forget that?) Calendar Connector will help you recall any weekly, monthly, or annual payroll tax deposit due dates for your small business.

    You can choose what types of taxes you get to see: all taxes due, general taxes, employer taxes, or excise taxes. Set the program to automatically update any IRS changes and start as soon as your computer starts up  Here’s the best part — Calendar Connector is free. So now there’s no way you can forget to make that payroll tax deposit!

    If you want to take the hassle out of payroll tax filing altogether, why not try Patriot Software’s Full Service Payroll. Patriot’s payroll services automatically file all federal, state and local payroll taxes on your behalf.

    Photo credit: Ronaldo Taveira

    A Closer Look: On-Call Time and Employee Payroll

    on call payrollAre you paying your employees while they’re are on-call? If you’re not, you might want to spruce up your labor law knowledge.

    Your employees may be considered on-call if they have to stick close enough to the job in order to respond to your calls within a short time frame (10-15 minutes) for emergencies.

    A Minnesota hospital was recently required to pay more than $77,000 in back wages for 21 emergency medical technicians who weren’t paid for their on-call time. The Dept. of Labor said the hospital violated the Fair Labor Standards Act when they made the employees work more than 40 hours a week without properly compensating the employees on their payroll. The employees should have been paid for their on-call time, when they had to stay nearby and get to their ambulances within six minutes of a phone call.

    The Fair Standards Labor Act requires an employee to be paid if any of these are true:

    • Your employee is unable to enjoy uninterrupted personal activities.
    • Your employee is required to remain on the employer’s premises.

    What if you require an employee to carry a cell phone in case an issue arises at work or merely check in with you while they’re on vacation? That doesn’t mean they’re on-call.

      Here’s the last word on the subject. According to the Code of Federal Regulations, section 785.17, “an employee who is required to remain on call on the employer’s premises or so close thereto that he cannot use the time effectively for his own purposes is working while “on call.” An employee who is not required to remain in the employee’s premises but is merely required to leave word at his home or with company officials where he may be reached is not working while on call.”

    To read more about overtime, payroll, and wage laws, check out the Dept. of Labor website

    Payroll Mystery Solved: Code CC in Box 12 of the W-2

    payroll mysteriesNote: Code CC was only used on the 2010 Form W-2. 

    Whether you’re an employer or an employee, you may be wondering: what the heck is “code CC” in Box 12 of the W-2?

    Here’s your answer: the special “code CC” on the 2010 W-2 has to do with the HIRE Act (Hiring Incentives to Restore Employment), which was signed into law in last year.

    With the HIRE Act, employers could take a payroll tax exemption of their 6.2% share of Social Security if they added a new qualified employee to their payroll during the period of March 19 – December 31, 2010.

    To claim the payroll tax exemption, employers must follow some very specific instructions (including having the employee fill out an affidavit). These employers can also receive a retention credit through the HIRE Act if they retain the employee on their payroll for a certain length of time.

    Any amount reported using code CC in box 12 on the employee’s W-2 is required for IRS information only; it doesn’t mean additional payroll wages are being reported for the employee.

    Mystery solved! To learn more, read the training article about the HIRE Act.

    IRS Corrects Error Regarding Hire Act, Payroll Tax Deposits

    payroll tax newsIf you have received a notice lately about the HIRE Act and your 941 payroll tax liability, you may be relieved to know that even the IRS makes mistakes sometimes.

    Here is some background. The 2010 HIRE Act — Hiring Incentives to Restore Employment — was meant to encourage certain employers to add to their payroll by forgoing their 6.2% share of Social Security on wages for the period March 19 – December 31, 2010. Because the HIRE Act did not exist until the end of the first quarter of 2010, the IRS didn’t have the revised 941 form ready in time for first-quarter 941 payroll tax reporting.They advised employers to instead claim any HIRE Act wages from March 19-31, 2010, on their second-quarter payroll tax period ending June 30, 2010.
    The updated form had a special line-item (line 12e) to report any HIRE Act wages that were not reported in the first quarter. But due to a computer glitch, the IRS mailed some employers erroneous CP207 notices that proposed penalties for failure to pay payroll taxes. Some employers also received CP276B notices asking them to review their records.

    The good news is that the IRS has recognized their error and reversed mistaken penalty assessments on business owners.

    Payroll Professionals: Work Opportunity Tax Credit Stays for 2011

    adding to payroll with WOTCIf you’re planning to add employees to your payroll this year, don’t forget about the Work Opportunity Tax Credit (WOTC), which could save you money on your income taxes. The credit is available to employers who hire from target groups that experience barriers to employment, including qualified veterans or ex-felons.The WOTC was due to expire, but it’s been extended through December 31, 2011, as part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 signed into law in December.

    Designed to encourage employers to add hard-to-employ individuals to their payroll, the credit is generally equal to 40% (only 25% if the employee doesn’t reach a minimum employment level) of the first $6,000 of wages paid to each qualified employee on your payroll. Employers can take the credit on their federal income tax return using IRS Form 5884. Note: You must reduce any wages deducted as a business deduction by the amount of credit you were allowed.

    Minimum Employment
    The WOTC only applies to qualified employees working a minimum of 120 hours. The 40% credit applies to qualified employees on your payroll program working 400 or more hours, while the 25% credit applies to employees working less than 400 hours.

    Targeted Groups
    Internal Revenue Code Section 51 identifies targeted groups who qualify under the WOTC:

    1.       Qualified IV-A recipients;
    2.       Qualified veterans (credit applies to the first $12,000 of wages for these employees);
    3.       Qualified ex-felons;
    4.       Designated community residents;
    5.       Vocational rehabilitation referrals;
    6.       Qualified summer youth (credit only applies to the first $3,000 of wages for these employees)
    7.       Qualified food stamp recipients;
    8.       Qualified SSI recipients; or
    9.       Long-term family assistance recipients (formerly welfare-to-work individuals; the credit is computed very differently for this group).

    (Note: The 2010 Act did not extend the WOTC for two groups: unemployed veterans and disconnected youth.)

    To apply for this credit, fill out two forms: the IRS Form 8850 (opens up your request for a tax credit), and the U.S. Department of Labor’s ETA Form 9061 (identifies the individual’s target group for certification). Then, send these forms to your local Agency WOTC Coordinator within 28 days of the new employee’s first day of work.To learn more about this tax credit opportunity, visit the U.S. Dept. of Labor website.

    2011 Circular E Answers Your Payroll Questions

    IRS Circular E Helps With PayrollEven if you’re using payroll software that automatically updates for payroll tax changes, Circular E — The IRS Employer Tax Guide — is a handy resource to have on your desk.

    Offering more than just payroll withholding tables, Circular E can settle many of your payroll-related questions, such as definitions of employees, when certain payroll taxes are due and what are the lookback periods for employers.

    The latest version of the IRS 2011 Circular E provides insight into recent federal tax law changes including the 2% Social Security payroll tax cut, as well as important government contact numbers.

    IRS Small Business Tax Calendar Helps With Payroll

    IRS Tax CalendarThe Internal Revenue Service publishes an annual calendar for small business owners. The Tax Calendar for Small Businesses and the Self-Employed can help you keep track of payroll tax deposit due dates and important dates for other business-related taxes.

    While this year’s calendar is online only, you can print out your own copy to help you remember important dates, such as 941 payroll tax deposits and filing deadlines for payroll taxes and quarterly estimates.

    [RELATED ARTICLE: What is Form 941]

    The calendar offers plenty of other resources for small business owners, including employer news, links to payroll-related and other business pages on the IRS website, forms and publications. Small business owners can also find valuable advice on setting up accounting methods for their company and proper payroll practices.

    Adding Employees To Payroll Offers Tax Benefits For Businesses

    hire actWhen you figure your 2010 business taxes, don’t forget about the Hiring Incentives to Restore Employment (HIRE) Act, signed into law March 18, 2010. The HIRE Act created two new tax benefits for qualified employers who hire certain qualified employees. If you have added employees to your payroll in the last year, it’s worth your while to explore whether your business can qualify.The Payroll Tax Exemption
    Qualified employers may receive an exemption on their 6.2% share of Social Security payroll tax for wages paid to qualified employees between March 19 – Dec. 31, 2010. While the payroll tax exemption is not available to employers in 2011, if you missed out, you can still get the exemption retroactively (for up to three years.) File an amended 941-X and complete the W-11 affidavit explained below.

    [RELATED ARTICLE: Use Form 941-X to Correct Payroll Tax Errors]

    The HIRE Retention Credit
    If you added a new employee to your payroll between Feb. 3 – Dec. 31, 2010, you may qualify for the HIRE Retention Credit on your business income tax return.

    Qualified employers can take this General Business Credit of $1,000 for each qualified employee retained for at least 52 consecutive weeks, whose wages do not significantly decrease during the last 26 weeks. The credit is the lesser of $1,000 or 6.2% of wages paid to the employee during the 52-week period. The employee’s wages in the last 26 weeks must equal at least 80% of wages for the first 26 weeks. This credit can’t be carried back to years before March 18, 2010, but can be carried forward.
    Definitions
    Qualified employees:

    1. Began employment with a qualified employer after Feb. 3, 2010, and before Jan. 1, 2011;
    2. Are not family members of or related in certain other ways to the employer;
    3. Are not replacing another employee of the qualified employer, unless the other employee terminated employment voluntarily or was terminated for cause; and
    4. Certify by signed affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the 60 days ending the date they started employment.

    You can use Form W-11, The (HIRE) Act Employee Affidavit, to meet the employee affidavit requirement. Although you need this certification to claim both tax benefits, you won’t file these statements with the IRS. Retain the documents with your payroll and income tax records.

    Qualified Employers:

    1. Taxable businesses and tax-exempt organizations in the U.S. or in any U.S. territories subject to Social Security tax.
    2. Federal, state, and local government employers generally do not qualify. However, public colleges and universities can qualify, as well as Indian tribal governments.
    3. Household employers do not qualify.

    Payroll Managers: Note Changes to 2011 Form 941

    payroll_changes_up_close

    The IRS made several tweaks and changes to Form 941, Employer’s Quarterly Federal Tax Return for 2011, and the updated form is now available. As you sit down to figure out your quarterly payroll taxes, here’s a quick look at the changes:

    Change in employee Social Security contribution rate for 2011. The tax rate for employees is now 4.2% for 2011 as a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The employer’s contribution rate remains unchanged at 6.2%. (Luckily, the updated form has a reminder about the reduced tax rate that you can’t miss.)

    A new line added for reporting tax due on tips that were unreported. Section 3121(q) Notice and Demand is a place for reporting Social Security and Medicare tax on previously unreported or under-reported tips. For more information, see instructions for Form 941, Section 5e.

    The qualified employer’s Social Security tax exemption, which expired on December 31, 2010, is no longer an option.

    The ending of the advance earned income credit. While the earned income credit is still available to taxpayers, the government eliminated the advanced option for earned income credit as of Dec. 31, 2010. Note: remind your employees that if they received the advanced EIC in 2010, they need to report this credit on their 2010 federal income tax return.

    COBRA premium assistance credit. If you helped a former employee on your payroll make their COBRA payments, you may qualify to take a tax credit.

    Electronic funds transfer for federal payroll tax deposits. By now, I hope you know about the requirement for employers to file all federal tax deposits electronically. if not, get up to speed by reading the previous blog article “Changes Ahead for Employers Making Federal Payroll Tax Deposits.

    A block of greyed-out lines (6a-d) “reserved for future use.” Sounds like another payroll mystery to be solved…

    Here is a link to the 2011 Form 941 and instructions for filling it out.

    If you have any comments about the new form, please feel free to share.

    Deadline Approaches to Electronically Submit W-2s for Payroll

    Are you ready to prepare your W-2s for 2015? If your payroll department is filing your Social Security wage file electronically, your deadline is fast approaching. Social Security has set the due date for electronic wage filers. Forms W-2 and W-3 must be submitted by March 31st.

    Who is required to file W-2s electronically?

    If you have more than 250 employees on your payroll, you must file electronically. However, any business owner can file electronically if they want, even if they have fewer than 250 employees. (In fact, the SSA would prefer it.) When you file electronically, make sure you do not also submit redundant paper forms to Social Security.

    How do I file electronically?

    You can sign up for an account at the SSA’s Business Services Online. The site will walk you through the steps of confidentially filing W-2s for everyone on your payroll. You need to install the Adobe Acrobat Reader (version 5 or later.) From there, you can manually submit your payroll information or upload an electronic wage file.

    Payroll software may save you time and help with accuracy when it’s time to prepare your W-2 forms. Try our convenient, affordable online payroll … and the first month is free!

    Article updated 11/17/2015

    Remember Payroll Tax Deadlines with Calendar Connector

    remember payroll tax deadlines calendar pictureAttention small business owners — the IRS has a new tool to help you remember not to forget to pay your taxes! If you have trouble recalling when to make your monthly payroll tax deposit, try the IRS Calendar Connector, a nifty little program you can download quickly from the IRS website. Calendar Connector will remind you of whatever tax deadlines you tell it to, including payroll tax deposit deadlines. You first need to download Adobe Air for the IRS program to work, but then you can be up and running in minutes. You can even check in with the Calendar Connector when you’re offline.

    Tailor Your Payroll Tax Deadlines Calendar

    Tailor the program settings according to your own business needs. For example, are you a monthly or bi-weekly depositor for your business payroll taxes? Do you need to remember the date that your 1099s are due, or when to file the 1040 (as if you could forget that?) Calendar Connector will help you recall any weekly, monthly, or annual payroll tax deposit due dates for your small business.

    You can choose what types of taxes you get to see: all taxes due, general taxes, employer taxes, or excise taxes. Set the program to automatically update any IRS changes and start as soon as your computer starts up  Here’s the best part — Calendar Connector is free. So now there’s no way you can forget to make that payroll tax deposit!

    If you want to take the hassle out of payroll tax filing altogether, why not try Patriot Software’s Full Service Payroll. Patriot’s payroll services automatically file all federal, state and local payroll taxes on your behalf.

    Photo credit: Ronaldo Taveira

    A Closer Look: On-Call Time and Employee Payroll

    on call payrollAre you paying your employees while they’re are on-call? If you’re not, you might want to spruce up your labor law knowledge.

    Your employees may be considered on-call if they have to stick close enough to the job in order to respond to your calls within a short time frame (10-15 minutes) for emergencies.

    A Minnesota hospital was recently required to pay more than $77,000 in back wages for 21 emergency medical technicians who weren’t paid for their on-call time. The Dept. of Labor said the hospital violated the Fair Labor Standards Act when they made the employees work more than 40 hours a week without properly compensating the employees on their payroll. The employees should have been paid for their on-call time, when they had to stay nearby and get to their ambulances within six minutes of a phone call.

    The Fair Standards Labor Act requires an employee to be paid if any of these are true:

    • Your employee is unable to enjoy uninterrupted personal activities.
    • Your employee is required to remain on the employer’s premises.

    What if you require an employee to carry a cell phone in case an issue arises at work or merely check in with you while they’re on vacation? That doesn’t mean they’re on-call.

      Here’s the last word on the subject. According to the Code of Federal Regulations, section 785.17, “an employee who is required to remain on call on the employer’s premises or so close thereto that he cannot use the time effectively for his own purposes is working while “on call.” An employee who is not required to remain in the employee’s premises but is merely required to leave word at his home or with company officials where he may be reached is not working while on call.”

    To read more about overtime, payroll, and wage laws, check out the Dept. of Labor website

    Payroll Mystery Solved: Code CC in Box 12 of the W-2

    payroll mysteriesNote: Code CC was only used on the 2010 Form W-2. 

    Whether you’re an employer or an employee, you may be wondering: what the heck is “code CC” in Box 12 of the W-2?

    Here’s your answer: the special “code CC” on the 2010 W-2 has to do with the HIRE Act (Hiring Incentives to Restore Employment), which was signed into law in last year.

    With the HIRE Act, employers could take a payroll tax exemption of their 6.2% share of Social Security if they added a new qualified employee to their payroll during the period of March 19 – December 31, 2010.

    To claim the payroll tax exemption, employers must follow some very specific instructions (including having the employee fill out an affidavit). These employers can also receive a retention credit through the HIRE Act if they retain the employee on their payroll for a certain length of time.

    Any amount reported using code CC in box 12 on the employee’s W-2 is required for IRS information only; it doesn’t mean additional payroll wages are being reported for the employee.

    Mystery solved! To learn more, read the training article about the HIRE Act.

    IRS Corrects Error Regarding Hire Act, Payroll Tax Deposits

    payroll tax newsIf you have received a notice lately about the HIRE Act and your 941 payroll tax liability, you may be relieved to know that even the IRS makes mistakes sometimes.

    Here is some background. The 2010 HIRE Act — Hiring Incentives to Restore Employment — was meant to encourage certain employers to add to their payroll by forgoing their 6.2% share of Social Security on wages for the period March 19 – December 31, 2010. Because the HIRE Act did not exist until the end of the first quarter of 2010, the IRS didn’t have the revised 941 form ready in time for first-quarter 941 payroll tax reporting.They advised employers to instead claim any HIRE Act wages from March 19-31, 2010, on their second-quarter payroll tax period ending June 30, 2010.
    The updated form had a special line-item (line 12e) to report any HIRE Act wages that were not reported in the first quarter. But due to a computer glitch, the IRS mailed some employers erroneous CP207 notices that proposed penalties for failure to pay payroll taxes. Some employers also received CP276B notices asking them to review their records.

    The good news is that the IRS has recognized their error and reversed mistaken penalty assessments on business owners.

    Payroll Professionals: Work Opportunity Tax Credit Stays for 2011

    adding to payroll with WOTCIf you’re planning to add employees to your payroll this year, don’t forget about the Work Opportunity Tax Credit (WOTC), which could save you money on your income taxes. The credit is available to employers who hire from target groups that experience barriers to employment, including qualified veterans or ex-felons.The WOTC was due to expire, but it’s been extended through December 31, 2011, as part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 signed into law in December.

    Designed to encourage employers to add hard-to-employ individuals to their payroll, the credit is generally equal to 40% (only 25% if the employee doesn’t reach a minimum employment level) of the first $6,000 of wages paid to each qualified employee on your payroll. Employers can take the credit on their federal income tax return using IRS Form 5884. Note: You must reduce any wages deducted as a business deduction by the amount of credit you were allowed.

    Minimum Employment
    The WOTC only applies to qualified employees working a minimum of 120 hours. The 40% credit applies to qualified employees on your payroll program working 400 or more hours, while the 25% credit applies to employees working less than 400 hours.

    Targeted Groups
    Internal Revenue Code Section 51 identifies targeted groups who qualify under the WOTC:

    1.       Qualified IV-A recipients;
    2.       Qualified veterans (credit applies to the first $12,000 of wages for these employees);
    3.       Qualified ex-felons;
    4.       Designated community residents;
    5.       Vocational rehabilitation referrals;
    6.       Qualified summer youth (credit only applies to the first $3,000 of wages for these employees)
    7.       Qualified food stamp recipients;
    8.       Qualified SSI recipients; or
    9.       Long-term family assistance recipients (formerly welfare-to-work individuals; the credit is computed very differently for this group).

    (Note: The 2010 Act did not extend the WOTC for two groups: unemployed veterans and disconnected youth.)

    To apply for this credit, fill out two forms: the IRS Form 8850 (opens up your request for a tax credit), and the U.S. Department of Labor’s ETA Form 9061 (identifies the individual’s target group for certification). Then, send these forms to your local Agency WOTC Coordinator within 28 days of the new employee’s first day of work.To learn more about this tax credit opportunity, visit the U.S. Dept. of Labor website.

    2011 Circular E Answers Your Payroll Questions

    IRS Circular E Helps With PayrollEven if you’re using payroll software that automatically updates for payroll tax changes, Circular E — The IRS Employer Tax Guide — is a handy resource to have on your desk.

    Offering more than just payroll withholding tables, Circular E can settle many of your payroll-related questions, such as definitions of employees, when certain payroll taxes are due and what are the lookback periods for employers.

    The latest version of the IRS 2011 Circular E provides insight into recent federal tax law changes including the 2% Social Security payroll tax cut, as well as important government contact numbers.

    IRS Small Business Tax Calendar Helps With Payroll

    IRS Tax CalendarThe Internal Revenue Service publishes an annual calendar for small business owners. The Tax Calendar for Small Businesses and the Self-Employed can help you keep track of payroll tax deposit due dates and important dates for other business-related taxes.

    While this year’s calendar is online only, you can print out your own copy to help you remember important dates, such as 941 payroll tax deposits and filing deadlines for payroll taxes and quarterly estimates.

    [RELATED ARTICLE: What is Form 941]

    The calendar offers plenty of other resources for small business owners, including employer news, links to payroll-related and other business pages on the IRS website, forms and publications. Small business owners can also find valuable advice on setting up accounting methods for their company and proper payroll practices.

    Adding Employees To Payroll Offers Tax Benefits For Businesses

    hire actWhen you figure your 2010 business taxes, don’t forget about the Hiring Incentives to Restore Employment (HIRE) Act, signed into law March 18, 2010. The HIRE Act created two new tax benefits for qualified employers who hire certain qualified employees. If you have added employees to your payroll in the last year, it’s worth your while to explore whether your business can qualify.The Payroll Tax Exemption
    Qualified employers may receive an exemption on their 6.2% share of Social Security payroll tax for wages paid to qualified employees between March 19 – Dec. 31, 2010. While the payroll tax exemption is not available to employers in 2011, if you missed out, you can still get the exemption retroactively (for up to three years.) File an amended 941-X and complete the W-11 affidavit explained below.

    [RELATED ARTICLE: Use Form 941-X to Correct Payroll Tax Errors]

    The HIRE Retention Credit
    If you added a new employee to your payroll between Feb. 3 – Dec. 31, 2010, you may qualify for the HIRE Retention Credit on your business income tax return.

    Qualified employers can take this General Business Credit of $1,000 for each qualified employee retained for at least 52 consecutive weeks, whose wages do not significantly decrease during the last 26 weeks. The credit is the lesser of $1,000 or 6.2% of wages paid to the employee during the 52-week period. The employee’s wages in the last 26 weeks must equal at least 80% of wages for the first 26 weeks. This credit can’t be carried back to years before March 18, 2010, but can be carried forward.
    Definitions
    Qualified employees:

    1. Began employment with a qualified employer after Feb. 3, 2010, and before Jan. 1, 2011;
    2. Are not family members of or related in certain other ways to the employer;
    3. Are not replacing another employee of the qualified employer, unless the other employee terminated employment voluntarily or was terminated for cause; and
    4. Certify by signed affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the 60 days ending the date they started employment.

    You can use Form W-11, The (HIRE) Act Employee Affidavit, to meet the employee affidavit requirement. Although you need this certification to claim both tax benefits, you won’t file these statements with the IRS. Retain the documents with your payroll and income tax records.

    Qualified Employers:

    1. Taxable businesses and tax-exempt organizations in the U.S. or in any U.S. territories subject to Social Security tax.
    2. Federal, state, and local government employers generally do not qualify. However, public colleges and universities can qualify, as well as Indian tribal governments.
    3. Household employers do not qualify.

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