In order to help stimulate hiring in the private sector, the Hiring Incentives to Restore Employment (HIRE) Act of 2010 provided a payroll tax holiday in 2010 for new workers who were previously out of work and a retention credit in 2011 for workers retained for at least a year. For all tax years ending after March 18, 2010, employers may take a credit of up to $1,000 per retained workers. Employees who qualify for this credit must meet the following requirements:
- Was hired and began working for a qualified employer after February 3, 2010 and before January 1, 2011
- Certified by signed affidavit (Form W-11) that he/she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment began
- Wasn’t employed to replace another employee unless the employee being replaced left voluntarily or for cause
- Was not related to the qualified employer
- Was employed by the taxpayer for a period of not less than 52 consecutive weeks
- Earned wages for that employment during the last 26 weeks of the period equal to at least 80% of the wages for the first 26 weeks of that period
When to claim
For a business on a calendar year, the retention credit will be claimed on the 2011 business tax return. The retention credit for each retained employee is only available in one tax year. This credit can be used to offset tax on a C-Corporation or will flow-through to the owners of S-Corporations and Partnerships.
The retention credit cannot be used to offset the alternative minimum tax (AMT). Furthermore, the business deduction for compensation is not affected by the credit.
Per retained worker, the credit is calculated as the lesser of:
- $1,000, or
- 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period.
Therefore, the retention credit will be $1,000 if the retained worker's wages exceed $16,129.
If you took advantage of the payroll tax holiday in 2010 or hired new employees in 2010, talk with your Blackman Kallick tax advisor about this tax credit.