New payroll tax benefit aids nonprofits hiring unemployed

A new tax benefit is now available to nonprofit employers hiring workers who were previously unemployed or only working part time as part of the Hiring Incentives to Restore Employment Act enacted on March 18.

Employers who hire unemployed workers after Feb. 3, 2010 and before Jan. 1, 2011 may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010.

This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

The new tax benefit is especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

In addition, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on http://IRS.gov during the next few weeks.

In addition, for each worker retained for at least a year, for-profit businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns. Nonprofits are not eligible for this bonus.

For more information on this new tax benefit, see the National Council of Nonprofits web site: http://www.councilofnonprofits.org/public-policy/federal-policy-issues/economic-recovery/jobs/hiring-incentive-now-available.