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The HIRE Act
On March 18, 2010, President Obama signed into law an act that has a profound impact on how Payroll is processed.
The most significant feature of this act is creating a new exemption. Employers of certain qualified employees are exempt from the 6.2% Employer's portion of the FICA tax. This exemption is available for a limited time to any employer who hires unemployed people who meet certain criteria. The following wording comes from IRS Form W-11 (April 2010):
"Only employees who meet all the requirements of a qualified employee may complete this affidavit or similar statement. You cannot claim the HIRE Act benefits, including the payroll tax exemption or the new hire retention credit, unless the employee completes and signs this affidavit or similar statement under penalties of perjury and is otherwise a qualified employee.
A "qualified employee" is an employee who:
• begins employment with you after February 3, 2010, and before January 1, 2011;
• certifies by signed affidavit, or similar statement under penalties of perjury, that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employee begins employment with you;
• is not employed by you to replace another employee unless the other employee separated from employment voluntarily or for cause (including downsizing); and
• is not related to you. An employee is related to you if he or she is your child or a descendent of your child, your sibling or stepsibling, your parent or an ancestor of your parent, your stepparent, your niece or nephew, your aunt or uncle, or your in-law. An employee also is related to you if he or she is related to anyone who owns more than 50% of your outstanding stock or capital and profits interest or is your dependent or a dependent of anyone who owns more than 50% of your outstanding stock or capital and profits interest.
If you are an estate or trust, see section 51(i)(1) and section 152(d)(2) for more details."
(All of Phoenix Phive payroll software products print a substitute of this form W-11.)
Click this link to the official IRS Q&A Site for Employers for complete details.
Payroll software now needs to:
Phoenix Phive Payroll, Industrial Strength Payroll and CCIS Payroll for Churches and other non-profits are now able to identify and track wages paid to qualified employees in order to be able to perform all these required functions. We call them HIRE ACT Compliant.
Next we describe the process and procedures you need to follow to comply with the HIRE act. These assume that you own and already know how to use our software. If you are unsure of any point, please click here to go to our help section.
Employees
You need to know 3 things about a HIRE-Act qualified employee:
The signed W-11 is an absolute, no-excuses requirement for an employee to qualify. During many discussions, the IRS has made that point quite clear. The IRS has yet to specify what penalties are involved. We recommend that you not record any employee into this program until you know that a signed W-11 or equivalent is either in your files, or in those of your Client.
Proceed as follows to record an employee in the HIRE Act. Use this procedure for any qualified employee:
Record an employee information as usual.
Go to the Biographical section
Record the hire date in the Date Hired field.
Click the Local, EIC and HIRE tab
Locate the Hire Act Information section
Note that the Date Hired has been taken from the Biographical information. If the employee was hired during the eligible period, the Date Hired is green. If not, it is red and the other fields are ignored.
Click the checkbox only if you have a signed W-11 from the employee. If you need a W-11, click the green Print W-11 button and have the employee sign the resulting substitute W-11.
Next comes the Date of First Paycheck. This date is used when calculating Form 941 and is crucial to the system.
If the employee has already been paid this year, enter the first valid Check date (valid dates are 03/19/2010 to 12/31/2010).
If the employee has NOT yet been paid, and you are doing live payroll (i.e. writing checks, direct deposit, or other payment) then leave this field blank. The software will add the date when this employee is first paid.
After-the-fact preparers will always enter this date manually.
Recording Payroll
There is no visible change to recording payroll, either Live or After-the-fact; the software automatically makes adjustments for properly-entered Hire Act eligible employees.
There is a change in the Payroll Register. Note that the value for FICA in "Er's Part" of the Federal Tax Deposit Liability section is no longer necessarily the same as the FICA withheld.
Since the HIRE Act creates an exemption for the Employer's part of FICA, these amounts are excluded from the report and are not reported on Form 941 or Schedule B - Form 941.
Making your Tax Deposits
The EFTPS Report, used to deposit your taxes, has a new line.
This report mimics Form 941 so we added a new line called "HIRE FICA Exempt". The value in this line represents the total exempt net FICA wages times the FICA rate. It is shown as negative since it is subtracted from the total liability.
The Social Security section of the Payment Detail shows the Net Social Security liability.
Form 941 Page 1
The HIRE Act changes 2 areas on page 1 of Form 941.
The first area affects Form 941 for Quarters 2 through 4 of 2010.
Social Security and Medicare taxes on wages and tips are calculated in lines 5a through 5c as if all wages were subject to Employer's FICA.
Then the wages and tips paid to qualified employees are shown on line 6e, multiplied by the FICA Employer's rate of 6.2%, put into box 6d and subtracted out, ending with the net taxes before adjustment showing on line 6e.
Even though the amount is subtracted out, it is not shown as a negative number on Form 941 per the instructions on line 6e.
Note that the number of qualified recipients on line 6b includes newly-paid qualified recipients shown on line 6a.
The second change only affects Quarter 2 of 2010.
Because the HIRE Act was was effective the day after signing and it was signed before the end of the quarter, employers of qualified employees become entitled to repayment of their portion of FICA paid to qualified employees between March 19, 2010 and March 31, 2010.
The mechanism for this repayment is a credit on Form 941. This credit is developed on line 12d with the result in box 12e. This credit is added to the Total deposits from line 11 and COBRA premium assistance payments from line 12a and shown on line 13.
Form 941 Page 2
There is a very significant change to the wording of line 17. Formerly you were not required to report liability if the total liability for the current Quarter was less than $2,500.00. This has been changed.
Now you do not have to report liability if the total liability for the previous Quarter was under $2,500.00, even if the liability for the current quarter meets or exceeds that threshold. This change also affects when you have to pay that liability. Please refer to the revised Instructions for Form 941 for more.
Our software follows these new rules. This is why you may see no liabilities shown even if the current period values exceed the threshold.
When you actually are required to report these values, either on this page or on Schedule B-Form 941, our software uses the values as originally computed, even if the values include now-exempt employer's FICA.
As before, the total liabilities (if you have to report them) must agree with line 10. You will therefore have to adjust the liabilities using the Edit function. At present there is no guidance from the IRS as to other methods to accomplish this but quidance is expected. Please check the IRS web site.