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).

The OASDI tax rate for wages paid in 2009 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $106,800 would contribute $6,621.60 to the OASDI program in 2009, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2009 is 12.4 percent.