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Rev. date: 01/01/2011

A Business Credit Is Available for Qualified Employers Under "The HIRE Act" of 2010

Tax Topic 759
The HIRE Retention Credit
The Hiring Incentives to Restore Employment (HIRE) Act, signed into law March 18, 2010, created a tax benefit to encourage retention of new hires. The retention credit is available to employers and can be claimed for each “retained worker.” The retention credit provides employers with a General Business Credit of up to $1,000 for each retained worker. The amount of the credit is the lesser of $1,000 or 6.2 percent of wages (as defined for income tax withholding purposes) paid by the employer to the retained worker during the 52 consecutive week period. This credit cannot be carried back to years beginning before March 18, 2010, but may be carried forward. The credit will be claimed on the employer's income tax return.

— The Payroll Tax Exemption —

The Payroll Tax Exemption provides qualified employers with an exemption from the employer's 6.2% share of social security tax on wages paid to "qualified employees" from March 19, 2010, through December 31, 2010. The employees' 6.2% share of social security tax, and the employers' and employees' share of Medicare tax, still apply to all wages.

Retained Worker

A retained worker is any employee:
  1. Who begins employment with a qualified employer after February 3, 2010, and before January 1, 2011
  2. Who is not a family member of or related in certain other ways to the employer
  3. Who is not employed by the qualified employer to replace another employee of such employer unless such other employee terminated employment voluntarily or was terminated for cause
  4. Who certifies by signed affidavit, under penalties of perjury, that he or she has not been employed for more than 40 hours during the 60-day period ending on the date he or she begins such employment
  5. Who remains an employee of the qualified employer for at least 52 consecutive weeks, and
  6. Whose wages (as defined for income tax withholding purposes) for the last 26 weeks equal to at least 80% of the wages for the first 26 weeks.
Employers can use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, to meet the employee affidavit requirement. Employers are required to obtain an affidavit with the same information as the Form W-11, but they are not required to use Form W-11. Though employers need this certification to claim the HIRE retention credit, they do not file these statements with the IRS. Instead, they must retain them along with their other payroll and income tax records.

Qualified Employers

The following list identifies which employers qualify for the retention credit for retained workers:
  1. Taxable businesses and tax-exempt organizations qualify for the retention credit.
  2. Qualified employers in all five U.S. territories (i.e., American Samoa, Commonwealth of the Northern Mariana Islands, and Puerto Rico) that are subject to social security tax also qualify for the retention credit.
  3. Federal, state and local government employers generally do not qualify for the retention credit. However, public colleges and universities can qualify. Indian tribal governments also qualify.
For additional information about the HIRE retention credit see HIRE Act: Questions and Answers for Employers.