In March 2010, the President signed the Hiring Incentives to Restore Employment Act (“HIRE Act”). The law was part of a $17.6 billion jobs creation package that includes incentives for businesses to hire unemployed workers. This law provides Texas employers with an opportunity to reduce some of their payroll tax obligations for 2010.

The HIRE Act provides, among other things, an exemption for the employer’s share of Social Security payroll taxes in 2010 (normally 6.2 percent for the first $106,800 of wages) for each eligible employee that is hired between February 3, 2010 and January 1, 2011. To qualify for the exemption, the employee must: 1) swear that he did not work more than 40 hours during the last 60 days; and 2) not replace another employee except one who voluntarily resigned or was terminated for cause.  Additionally, the eligible employee must not be related to the employer.  The IRS has published an affidavit for use by eligible employees. (Form W-11).  The affidavit is not filed with the IRS but is retained by the employer to justify the use of the exemption in the event of an IRS audit.

Additionally, the law provides a tax credit for retaining employees. Employers that retain newly hired employees for at least 52 consecutive weeks can claim a tax credit on their 2011 tax returns if they meet certain conditions.  To be eligible for the tax credit (i.e., a dollar for dollar reduction in tax), the employee must: 1) be employed for 52 consecutive weeks; and 2) the employee’s wages in the last 26 weeks of the 52 week period must be at least 80 percent of his wages during the first 26 weeks of the period. The tax is capped at the lesser of $1,000 or 6.2 percent of the employee’s wages during the 52 week period. These provisions provide an opportunity for an employer to reduce its payroll tax obligations during this period of economic recovery in 2010.


For more information, see these links:


Two New Tax Benefits Aid Employers Who Hire and Retain Unemployed Workers

HIRE Act: Questions and Answers for Employers

Special Payroll Tax Exemption Form Now Available