IRS Notes Errors on Payroll Tax Returns Seeking HIRE Act Benefits

July 9, 2010

An IRS representative recently stated that the IRS has noticed errors appearing on quarterly payroll tax returns claiming the benefits provided under the Hiring Incentives to Restore Employment (HIRE) Act. Under the HIRE Act, qualified employers may, among other things, claim an exemption from a portion of their payroll taxes paid on qualifying employees. See HIRE Act Provides Tax Breaks for Hiring Unemployed Workers. That exemption is to be claimed on the employer’s quarterly Form 941. See Revised Form 941 for HIRE Act Payroll Tax Exemption.

According to the IRS, a number of the recently filed quarterly returns have been incorrectly completed, and dollar amounts have been inserted in spaces where the employer is supposed to enter the number of qualified employees eligible for the payroll tax exemption. Additionally, there have been arithmetic and employer identification number (EIN) transposition errors. If the IRS is unable to correct the errors on quarterly payroll tax returns itself, it will contact the filer for clarification. If the IRS’ attempts at clarification fail, it will process the returns without taking into consideration the payroll tax exemption.

The IRS also recently noted that it is in the process of creating a compliance plan for use in auditing returns claiming the HIRE Act’s benefits. Although this plan is still being put in place, employers should be prepared to provide a list of qualified employees the employer used to claim the HIRE Act’s benefits, as well as the affidavits required to be completed by qualified employees under the HIRE Act. See IRS Issues HIRE Act Final Form W-11 and New Q&As.

In light of these developments, employers claiming the HIRE Act’s benefits should be careful to ensure that they are correctly completing their quarterly payroll tax returns, complying with the HIRE Act’s eligibility requirements, and complying with the HIRE Act’s recordkeeping and retention requirements.