The Internal Revenue Service has been working over time thanks to all the new tax laws just passed. Thankfully they placed a rush order for their team to create the new form needed to allow employers to take advantage of some nice provisions of the HIRE Act.

Form W-11, "Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit," is now posted on IRS.gov, along with answers to frequently asked questions about the payroll tax exemption and the related new hire retention credit. The new law requires that employers get a statement from each eligible new hire, certifying under penalties of perjury, that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers can use Form W-11 to meet this requirement.

Most employers then use Form 941, "Employer’s Quarterly Federal Tax Return," to claim the payroll tax exemption for eligible new hires.

Employers need this certification from their new hires to claim both the payroll tax exemption and the new hire retention credit but they do not file these statements with the IRS. Instead, they must keep them along with other payroll and income tax records.

The HIRE Act, which President Obama signed into law on March 18, created two new tax benefits designed to encourage employers to hire and retain new workers. As a result, employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer’s share of social security tax on wages paid to these workers after March 18.

What happens to the new hire's Social Security Benefits?

This reduction will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. In addition, for each unemployed worker retained for at least a year, businesses may claim a new hire retention credit of up to $1,000 per worker when they file their 2011 income tax returns.

These two tax benefits are especially helpful to employers who are adding jobs to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause.

A word of warning here though. Do not get greedy if you own a family run business. Family members and other relatives do not qualify for either of these tax incentives.

Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible.

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