Press Room: Tax Release

May 04, 2010

Payroll Tax Savings

Tax Opportunity: Save Employer Share of Social Security Tax and Obtain $1,000 Tax Credit

The Opportunity
Qualified employers who hire any qualified individual after February 3, 2010 and before December 31, 2010 are relieved of their obligation to pay the employer share of the social security tax (6.2% on the first $106,800 of wages) on wages paid after March 18, 2010 through December 31, 2010. In addition, if the qualified individual remains employed for a period of not less than 52 consecutive weeks, the employer may be entitled to an additional general business tax credit of up to $1,000.

Employers qualifying for these benefits include all taxable businesses and tax-exempt organizations that are subject to federal social security tax.

A qualified individual is any individual who certifies by a signed affidavit (completion of Form W-11) that he or she has not been employed for more than 40 hours during the 60 day period ending on the date the individual begins employment, does not replace another employee unless the employee separated voluntarily or for cause and is not related to the employer.

The payroll tax exemption not only applies to newly-hired qualified individuals but also to wages paid to previously laid-off workers who are rehired and who are qualified individuals. In addition, recent graduates who have been in school for some or all of the 60 days preceding their start date can qualify as long as they are qualified individuals.

The tax credit that can be claimed on the employer’s 2011 income tax return is equal to the lesser of $1,000 or 6.2% of the wages paid during the 52 consecutive week period.

The Process
WTAS can assist employers in identifying the qualified individuals and the process of claiming the payroll tax savings and tax credit.

The Benefits
The social security tax rate is 6.2%. If a qualified individual is hired after March 18, 2010, is paid $50,000 through December 31, 2010 and remains employed for 52 consecutive weeks, then the employer saves $3,100 in social security taxes and receives a tax credit of $1,000. The net after-tax benefit is $2,922 (assuming a 38% combined income tax rate) per individual.