How to Claim the HIRE Act Retention Bonus
Keeping good employees is always a bonus. If you have kept employees hired under the HIRE Act, the bonus could come at tax time.
Passed in March 2010, the HIRE Act rewards employers who hired workers who had been unemployed for 60 days or more. Tax relief comes in the form of an exemption from Social Security payroll taxes.
For each worker retained for at least a year, there is an additional general business tax credit of up to $1,000 per qualified worker. The credit can be claimed on 2011 income tax returns.
How it Works
An employer can claim the bonus credit for each qualified worker retained for at least 52 consecutive weeks, whose wages for the last 26 weeks equal at least 80 percent of the wages earned the first 26 weeks. These can be full-time or part-time employees, and there are no restrictions on the type of work performed, age or geography. The amount of the credit is the lesser of $1,000 or 6.2 percent of wages paid by the employer to the retained worker during the 52 consecutive week period.
The new hire retention credit can be claimed for any qualified employee, as previously defined for purposes of the payroll tax exemption. In order to claim the earlier exemption, an employee must have completed Form W-11, HIRE Act Employee Affidavit, or a similar statement certifying that the employee had been unemployed for 60 days or more. The credit applies only for workers hired after Feb. 3, 2010, and before Jan. 1, 2011.
Say that a qualified worker (as defined by the HIRE Act) was hired in 2010 for a position that pays $25,000 annually. Of that amount, $20,000 was earned in 2010 and qualifies for an exemption of $1,240 for the employer’s share of Social Security tax in 2010 ($20,000 X 6.2 percent). That employee is retained for 52 consecutive weeks from the date of original hire (as defined by the HIRE Act), so there is an additional retention tax credit of $1,000 ($25,000 salary X 6.2 percent is $1,550, but is limited to $1,000). Add together the initial Social Security exemption ($1,240) and the retention credit ($1,000) for $2,240 in capital that would otherwise have been sent off to Uncle Sam.