Employers can now claim a payroll tax exemption for wages paid to qualifying new employees hired after February 3, 2010 and before January 1, 2011.

The IRS has revised Form 941 – Employer’s Quarterly Federal Tax Return, and its instructions, to include the special payroll tax exemption that was created by the Hiring Incentives to Restore Employment Act (HIRE) signed into law earlier this year.  The exemption is for the employer’s share of Social Security taxes on wages paid to eligible employees.

In order to qualify for the exemption, a new employee must meet the following criteria:

• The new worker must have been unemployed for at least 60 days prior to the new job;

• The new employee is not replacing another employee unless the worker being replaced left voluntarily or for cause;

• New hires must complete and sign Form W-11, Hiring Incentives to Restore Employment Act (HIRE) Employee Affidavit; and

• They cannot be related to the employer or to any owner controlling 50% or more of the company.

Also the employer cannot claim this payroll tax exemption and the Work Opportunity Credit for the same employee.  For more information, see the Form 941 instructions on www.irs.gov