What is the new hire retention credit and what does it apply to?
This is a general business credit to encourage retention of new hires (retained workers). The employer may claim the credit for each retained worker. A retained worker is a qualified employee (as defined for purposes of the payroll tax exemption) who remains an employee for at least 52 consecutive weeks, and whose wages (as defined for income tax withholding purposes) for the last 26 weeks equal at least 80% of the wages for the first 26 weeks. The amount of the credit is the lesser of $1,000 or 6.2% of wages (as defined for income tax withholding purposes) paid by the employer to the retained worker during the 52 consecutive week period. Here is a worksheet to aid you in providing information to us.
If an employer chooses to claim the WOTC for a qualified employee, can the employer still claim the new hire retention credit for that qualified employee?
Yes, an employer may claim the retention credit for a qualified employee even if the employer has also claimed the WOTC for the same employee. The new hire retention credit can be claimed for any qualified employee, as defined for purposes of the payroll tax exemption, once the employee is employed for 52 consecutive weeks, so long as the employee’s wages (as defined for income tax withholding purposes) for the last 26 weeks of employment equal at least 80% of the employee’s wages for the first 26 weeks of employment.
For what years can an employer claim the new hire retention credit with respect to a retained worker?
The credit may be claimed for a retained worker for the first taxable year ending after March 18, 2010 (the date of enactment of the HIRE Act), for which the retained worker satisfies the 52 consecutive week requirement. However, since retained workers must be qualified employees, the credit applies only for workers hired after February 3, 2010, and before January 1, 2011.
Calendar Taxpayers – Calendar year taxpayers are not eligible to claim the New Hire Retention Credit (Form 5884-B) on their 2010 tax returns due to the 52 week retention period. As a result, calendar year taxpayers are first eligible to claim the credit on their 2011 tax returns due April 15, 2012.
Fiscal Year Taxpayers – For fiscal year filers, the earliest date to file a return claiming the credit would be fiscal years ending after February 3, 2011.
Can a business carry back any portion of the new hire retention credit to use against a tax liability for years beginning before March 18, 2010, the date of enactment of the HIRE Act?
No, the portion of the general business credit attributable to the new hire retention credit cannot be carried back to a taxable year that begins before March 18, 2010.
Can the new hire retention credit offset the business Alternative Minimum Tax?
No, the new hire retention credit cannot be used to offset the business Alternative Minimum Tax.
Will the business deduction for compensation be reduced and or affected by the new hire retention credit?
Is the requirement that a retained worker remain an employee for at least 52 consecutive weeks relevant only for purposes of the new hire retention credit?
Yes, the 52-week requirement is used to determine eligibility for the new hire retention credit. It is not a requirement for the payroll tax exemption.
When does the period start for determining whether a qualified employee has been employed for at least 52 consecutive weeks?
The period for determining whether a qualified employee has been employed for at least 52 consecutive weeks starts on the date the employee begins employment with the employer.
Does an employee have to work during the entire 52 consecutive week period in order to qualify as a retained worker? For example, does unpaid vacation time or sick leave count for purposes of the 52 weeks?
In order to be a retained worker, the qualified employee must be employed by the employer for a period of not less than 52 consecutive weeks. Whether a qualified employee is employed for 52 consecutive weeks depends on the facts and circumstances.
As long as the employment relationship is not terminated during the 52 consecutive weeks and the wages paid to the qualified employee for the last 26 weeks of the 52-week period equal at least 80 percent of the wages paid to the employee for the first 26 weeks, the employee will be a retained worker even if he or she is not performing services the entire time.
Who are qualified employees?
Qualified employees are individuals who begin employment with a qualified employer after February 3, 2010, and before January 1, 2011, who have been unemployed or employed for 40 hours or less during the 60-day period ending on the date such employment begins, who are not employed by the qualified employer to replace another employee of that employer, unless the other employee separated from employment voluntarily or was terminated for cause, and who are not family members of or related in certain other ways to the employer.