May 21, 2010

Hiring Workers Might Earn Tax Benefits

According to a bill signed into law March 18, employers – including agricultural employers – who hire previously unemployed workers this year might be eligible for two new tax benefits: a FICA payroll tax exemption and a “retained worker” tax credit, according to the National Council of Agricultural Employers (NCAE).

An IRS press release states that both tax benefits are “especially helpful to employers who are adding positions to their payrolls.”

The benefits are part of the Hiring Incentives to Restore Employment (HIRE) Act, which applies to most employers, including those, like growers, who hire seasonal employees. Employers of seasonal employees are eligible for both benefits, but will probably get more out of the FICA exemption, according to NCAE.

NCAE wrote a white paper about the HIRE Act, which describes how the exemption works: “The FICA payroll tax exemption relieves employers from the obligation to pay the Old-Age, Survivors and Disability Insurance (OASDI) portion of their FICA tax obligation (6.2 percent of wages up to $106,800 for 2010) on wages paid to any ‘qualified employee’ between March 19, 2010, through Dec. 31, 2010.”

The white paper defines a “qualified employee” as someone hired between Feb. 3, 2010, and Jan. 1, 2011. The new employee must certify by signed affidavit (Form W-11 from IRS) that he or she was not employed for more than 40 hours total during the 60-day period immediately preceding his or her first day of work.

According to the IRS press release: “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 white paper adds further clarification: “The IRS has confirmed that employers who undergo layoffs or reductions and who then either recall the laid-off workers or hire new workers when business needs increase are not ‘replacing existing employees,’ and therefore may take the exemption with respect to such newly hired or reinstated employees. This is good news for agricultural employers, as it indicates that the FICA payroll tax exemption should apply to their 2010 seasonal hires.”

If you’re an agricultural employer and you’ve determined that some or all of your employees are qualified, have them fill out Form W-11 (which can be downloaded from the IRS website). Completed Form W-11s should be kept with other payroll and income tax records, so you’re prepared when the IRS asks for documentation to support the claimed tax exemption, according to NCAE.

To claim the exemption, employers should fill out Form 941 (for non-farmworker employees) or Form 943 (for farmworker employees). IRS will release both forms later in the year, according to NCAE.

Each qualified employee who’s retained for at least a year earns his employer a tax credit equal to 6.2 percent of the employee’s wages for a 52-week period (up to a maximum of $1,000), according to the white paper.

The 52-week minimum will make it difficult for seasonal employees to qualify for the credit, but if any of your employees do happen to be qualified, you can claim the credit on your annual tax return beginning with the 2011 tax year, according to the white paper.

For more information, click here.