Payroll Software Aids Claiming Hire Act Exemption on 2010 Form 941

On March 18, 2010 the federal government passed a new law the HIRE Act (Hiring Incentives to Restore Employment). The enactment of the HIRE Act allows employers to claim two tax benefits. The tax benefits apply to workers hired after Feb. 3, 2010 but before Jan. 1, 2011 and/ or for each worker employed for at least a year.

The first payroll tax exemption involves the employer's 6.2% share of Social Security tax. If the employer has a qualified employee the employer will be exempt from their 6.2% Social Security tax through December 31, 2010. The benefit is allowed for wages paid March 19, 2010 (the day after the bill was passed) through December 31, 2010.The new law does not apply to the employee's share of Social Security and Medicare or the employer portion of the Medicare withholding. The exemption does not reduce the employee's Social Security benefits.

The second payroll tax break (hire retention credit) applies in the case of the newly hired worker that retained for at least a year. Businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns. The employee's compensation must not significantly decrease the second six months of employment to qualify for the hire retention credit.



To claim the Hire Act payroll exemption employers will use 2010 Form 941. The IRS has updated the 2nd quarter 2010 Form 941 to reflect the Hire Act. Form 941 for 2010 includes boxes 6a, 6b, 6c, 12c and 12d for tax exemption entries. Box 6a is used for the number of qualified employees first (their first pay check falls in the current quarter) paid exempt wages/ tips this quarter, Box 6b the number of qualified employees paid exempt wages/tips this quarter and Box 6c exempt wages/tips paid to qualified employees this quarter. The boxes added under Cobra premium assistance payments are used to claim the exemption for qualified wages/ tips paid in the 1st quarter of the year (March 19th- March 31st). Box 12c is used to enter the number of qualified employees paid exempt wages/tips March 19-31, box 12d is used to report exempt wages/tips paid to qualified employees on March 19-31 and box 12e will be used to report the Social security tax exemption for March 19-31. The exemption for the 1st quarter of 2010 will be claimed on the second quarter Form 941 as a credit. The amount of the credit will be refunded to the employer or applied towards a liability in a following quarter.


The IRS has issued Form W-11 Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit to be used by employers to confirm that an employee is a qualified employee under the HIRE Act. Employees must certify by a signed affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the 60-day period ending on the date they started employment.


The new Hire Act bill can be an important asset to small business owners hoping to expand their company and payroll. Small business payroll software can help assure you do not miss any money coming to you. A beneficial payroll solution to ease the process of claiming Hire Act tax exemptions and inputting Form 941 data is small business payroll software that tracks qualified employees and automatically figures the 2010 Form 941 data to easily print and file with the IRS.


For more information about 2010 Form 941 payroll software, tax forms and payroll reports visit: http://www.realtaxtools.com/index.html