IRS Begins Examinations of HIRE Act Payroll Tax Exemption

February 9, 2011

The IRS has begun examining employers who have claimed the payroll tax exemption enacted as part of the Hiring Incentives to Restore Employment Act (HIRE Act), and is asking employers to provide several things, including: (1) a list of qualified employees; (2) a written statement explaining whether any qualified employees were hired to replace another employee, and whether any of the qualified employees are related to the employer; and (3) copies of the employer’s Forms 941.

On March 18, 2010, President Obama signed the HIRE Act into law, providing tax incentives for businesses hiring unemployed workers, and extending deduction limits for small businesses that make capital improvements. The employment-related benefits under the HIRE Act are:

  • 6.2% payroll tax exemption for employers who hire unemployed workers last year (after Feb. 3, 2010, and before Jan. 1, 2011).
  • $1,000 general business tax credit for each worker retained by the employer for at least one year.

The 6.2% payroll tax exemption under the HIRE Act effectively exempts employers from their share of Social Security taxes paid on qualifying employees from the date of enactment through the end of 2010. This provision is coordinated with the Work Opportunity Tax Credit (WOTC) to preclude the same wages from being eligible for both tax benefits.

At this time, it appears that the examinations are correspondence examinations being conducted by the IRS Service Center personnel. Given that 2010 ended just a little more than a month ago, the payroll tax exemption examinations are beginning sooner than examinations have historically begun. This is likely part of the general trend by the IRS to keep employers current (through examination and collection activities) with their payroll tax obligations.

Prior HIRE Act Articles

  • HIRE Act Provides Tax Breaks for Hiring Unemployed Workers
  • IRS Issues Draft Form to Certify Qualified Employees Under HIRE Act
  • IRS to Issue Hire Act Final Form W-11 Week of April 5
  • IRS Issues HIRE Act Final Form W-11 and New Q&As
  • IRS Issues Revised Forms W-2 and W-3 for HIRE Act Changes
  • IRS Issues Additional FAQs for HIRE Act
  • IRS Notes Errors on Payroll Tax Returns Seeking HIRE Act Benefits.
  • IRS Issues HIRE Act Guidance on Self-Employed Individuals and More
  • Revised Form 941-X for HIRE Act Payroll Tax Exemption