Hiring? Do Your New Hires Qualify You for Tax Credits?
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
Have you read the National Taxpayer Advocate Report to Congress that was released in July? In it, National Taxpayer Advocate Nina E. Olson describes hiring hardships faced by the average small-business owner:
Consider an individual without a college degree who becomes a successful plumber or electrician with a growing customer base. If he hires employees, he will face a host of employment, immigration verification, and state and federal tax requirements, including the need to withhold and pay over payroll taxes . . . and to file employment tax and income tax returns on behalf of his business. For most taxpayers, these requirements would seem daunting or even impenetrable, and some taxpayers inevitably do not comply simply because they have no idea where to begin.
Let’s face it-when you are a small-business owner faced with the burden of endless paperwork, you’re apt to overlook the tax benefits available to you when you hire new employees.
New Tax Credit: Hiring the Unemployed
The Hiring Incentives to Restore Employment (HIRE) Act, enacted in March 2010, gives employers two benefits:
1. Immediate benefit: You don’t have to pay your share of Social Security on the wages of new employees hired since March 18, 2010. Save 6.2 percent on all wages paid through the end of this year. Claim this payment reduction on your quarterly payroll tax returns and payroll tax deposits right now. The 2010 Form 941 has been revised to take this benefit into account.
2. Future benefit: Once your employee has worked for you for a full year (okay, a year and a day), you are entitled to a tax credit of $1,000 per employee.
Which new employees will give you these benefits under HIRE? They must have been unemployed, or underemployed, for at least the last sixty days before you hired them. Underemployed means they have not worked more than forty hours in the last sixty days.
The IRS has developed a new Form W-11 for new hires to fill out to swear that they qualify. Don’t worry-as an employer, you won’t be responsible for investigating or proving their claim.
There is a whole set of rules about rehiring laid-off workers-and other situations folks have found themselves in. The IRS answers questions about these on its FAQs about Qualified Employees page.
Hiring Special Employees
Often overlooked is the Work Opportunity Credit. It’s been around for years. Hire unemployed veterans, young people, poor people, old people, convicts, and other hard-to-place workers. Your credit will range from 25 percent to 50 percent of first- and second-year wages. The wage limits depend on the category of worker. Summer youth wages are limited to $3,000. Discharged military wages are limited to $12,000, and everything else is limited to $6,000. The employees need to be certified by your state’s unemployment department or certain government agencies. Read the instructions for Form 5884.
Hiring the right employee is very important. Credits are great, but remember that whoever works for you must fit your business needs and the social environment of your workplace. You, your other employees, and your customers will be “living” with this individual, so make the choice that’s right for everyone involved.
Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.