A final version of Form 941 for 2Q should be released by the IRS next week April 6th.

A new form W-11 will be released as well. This ‘Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit’ will be required for all employees eligible for this credit.

The Form W-2 will now include a new box 12 code of CC to report exempt wages and tips for qualified employees under the HIRE Act. The Form W-3 will also be altered to show the total of all the box 12 code CC entries.

For more information from the IRS, visit HIRE Act: Questions and Answers for Employers

The 1Q 941 form for 2010 is available now. Once the IRS releases the new  2Q-4Q forms, and official guidance, the forms will be made available through auto-update.

Quick overview of two key tax changes affecting businesses in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act.

To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800 — the maximum amount of wages subject to Social Security taxes — by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on the payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on the employer’s 2011 income tax return. In order to be eligible for the credit, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

The above incentives apply to workers hired after the date of introduction of the legislation (Feb. 3, 2010), but only wages paid after March 18 are eligible for the Social Security tax exemption. Some additional features of the new hiring incentives include:

• The tax benefit of the new incentive is immediate. It puts money into a business’ cash flow immediately, since the tax is simply not collected in the first place.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations and railroad employers — public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of Social Security taxes that qualify for the employer exemption.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can’t claim the new tax breaks for hiring family members.
• A worker who replaces another employee who performed the same job for the employer isn’t eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify for the above incentives, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn’t been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The incentive isn’t biased towards either low-wage or high-wage workers. Under the measure, a business will save 6.2% on both a $40,000 worker and a $90,000 worker.
• The Social Security tax exemption earned for the period from March 19, 2010 to March 31, 2010 may not be claimed on the first quarter employment tax return. The tax benefit that employers would have received in the first quarter of 2010 will be claimed on the second quarter employment tax return instead.
• The credit for retaining qualifying new hires is 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. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker’s wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn’t available for pay not treated as wages under the Internal Revenue Code (e.g., remuneration paid to domestic workers).

Other fixes:

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8027 for 2009.

http://www.irs.gov/newsroom/article/0,,id=204708,00.html

There are now four sections of questions covering:

• Administration and eligibility
• Form preparation
• Reporting and documentation
• Taxability and recapture

Much of the material here was updated on 3/19/09.

Important Highlight:

FP-17
Q. Does a COBRA premium assistance credit reduce an employer’s payroll tax liabilities when determining whether $100,000 in liabilities has accumulated for deposit purposes?

A. The credit is treated like a payment of payroll taxes and is applied as a deposit made on the first day of the quarter. It does not reduce an employer’s tax liabilities for purposes of determining the employer’s deposit schedule generally or applying the $100,000 deposit rule specifically. However, since the credit is applied as a deposit, a required deposit can be reduced by the amount of the credit. For example, if an employer accumulates $110,000 of liabilities and has a $20,000 subsidy credit, the employer must still deposit the next day under the $100,000 rule, but is only required to deposit $90,000. (03/19/09)

Please see the article for full details…

Under the American Recovery and Reinvestment Act of 2009, certain individuals who are eligible for COBRA continuation health coverage, or similar coverage under State law, may receive a subsidy for 65 percent of the premium. These individuals are required to pay only 35 percent of the premium. The employer may recover the subsidy provided to assistance-eligible individuals by taking the subsidy amount as a credit on its quarterly employment tax return. The employer may provide the subsidy — and take the credit on its employment tax return — only after it has received the 35 percent premium payment from the individual.

Q: What individuals are eligible for the COBRA subsidy?

A: An assistance-eligible individual can be any COBRA qualified beneficiary associated with the related covered employee, such as a dependent child of an employee, who is covered immediately prior to the qualifying event. The qualifying event for purposes of eligibility for the subsidy is involuntary termination of the covered employee’s employment that occurs during the period beginning Sept. 1, 2008, and ending Dec. 31, 2009. The individual must also be eligible for COBRA coverage, or similar state coverage, during this period.

Q: Can an employer decide only to claim the credit at the end of the quarter rather than reducing its tax deposits during the quarter?

A: Yes. The employer can decide either to offset its payroll tax deposits or claim the subsidy as an overpayment at the end of the quarter.

Q: Can an employer reduce its payroll deposits during the quarter by the amount of the COBRA subsidy it provides during the quarter without incurring a Failure to Deposit penalty?

A: The amount of the COBRA subsidy the employer provides during the quarter (based on the 35 percent premium payments received from assistance eligible individuals during the quarter) will be treated as having been deposited on the first day of the quarter and applied against the employer’s deposit requirements.

Q: Will Schedule B continue to reflect the total payroll tax liabilities for the quarter, or will the liabilities reported be reduced by the COBRA subsidy credits?

A: Schedule B is used to report an employer’s payroll tax liability for each payroll period, not the amount of the employer’s payroll tax deposits. Therefore, when the employer reduces a deposit by the amount of the COBRA subsidy, this has no affect on the liabilities the employer reports on Form 941, Schedule B (or the monthly totals in Part 2 of Form 941).  The employer should still reflect on Schedule B (or in Part 2, Form 941) the total liabilities for all wages reported on Form 941.

Q: It might be difficult to make the April 30, 2009 deadline for filing the new Form 941. Who should we contact if we want to request an extension of time to file?

A: No extensions are available for filing of employment tax returns.

WASHINGTON — The Internal Revenue Service today released new detailed information that will help employers claim credit for the COBRA medical premiums they pay for their former employees.

The IRS unveiled new information on this Web site, IRS.gov, that includes an extensive set of questions and answers for employers. In addition, the Web site contains a revised version of the quarterly payroll tax return that employers will use to claim credit for the COBRA medical premiums they pay for their former employees.

Form 941, Employer’s Quarterly Federal Tax Return, will also be sent to about 2 million employers in mid-March. The form is used to claim the new COBRA premium assistance payments credit, beginning with the first quarter of 2009.

“This is the first step in our effort to provide employers with information on this important health benefit for people who have lost their jobs,” said IRS Commissioner Doug Shulman. “We will continue our work in the weeks ahead to help employers implement this crucial change for the nation’s unemployed.”

Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage. Employers must treat the 35 percent payment by eligible former employees as full payment, but the employers are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return.

Employers must maintain supporting documentation for the credit claimed. This includes:

• Documentation of receipt of the employee’s 35 percent share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.

More information about COBRA payments and the new law is available on www.dol.gov.