Qualified employers are exempt from paying their share of FICA taxes for qualified employees from March 19, 2010 through December 31, 2010. Employers may also be able to claim a credit of up to $1,000 for retaining the newly hired worker for at least 52 consecutive weeks.
Qualified Individuals are persons who:
(1) begin employment with a qualified employer after February 3, 2010, and before January 1, 2011;
(2) certify, by 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 the employment with the qualified employer begins;
(3) are not hired to replace another employee of the qualified employer, unless the other employee voluntarily quit or was fired with cause; and
(4) are not related to the employer in a way that would make them ineligible for the work opportunity credit.
Employers must get a signed statement from each qualified individual, certifying that the individual was not employed for more than 40 hours during the 60 days preceding their hiring date. Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, can be used to meet this requirement. Although this certification is required, the Forms W-11 are not filed with the IRS. Instead, they should be retained with other payroll and income tax records.
The first date on which a qualified individual can begin employment (February 4, 2010) is earlier than the date on which the payroll tax holiday becomes effective (March 19, 2010).
The payroll tax exemption does not apply when an employer terminates workers without cause, in order to replace them with workers who qualify for the exemption. However, it does apply when a qualified employer hires an otherwise qualified individual to replace an individual whose employment was terminated for cause or due to other facts and circumstances. For example, the exemption applies when an employer reopens a factory that was closed due to lack of demand, and rehires qualified individuals who had worked for the employer but were terminated when the factory was closed.
According to the IRS website at www.irs.gov, the exemption is not limited to employers that laid workers off, or qualified individuals who lost their jobs. The payroll tax holiday also applies to new employers, and to qualified individuals who were unemployed because they were students. However, for any qualified individual, the 60-day unemployment period must be continuous, but it can span 2009 and 2010.
Effect on employees. The payroll tax holiday will not affect the worker's future social security or RRTA benefits, because additional appropriations to the social security and RRTA trust funds will replace the lost OASDI and RRTA taxes. Employers that take advantage of the payroll tax exemption must still withhold and pay over the employee's share of OASDI or RRTA Tier 1 taxes, as well as the employer's and employee's share of health insurance (HI) taxes.