Code Section 3111
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 3111 | 3/18/2010 | The Hiring Incentives to Restore Employment Act | Payroll Tax Forgiveness for Hiring Unemployed Workers | -7,616 |
Payroll Tax Forgiveness for Hiring Unemployed Workers
Explanation of Provision
- In general
- Qualified employer
- Qualified individual
- Employer election
- Coordination with work opportunity tax credit
- Social Security trust funds
1. In general
The provision provides relief from the employer share of OASDI taxes (or railroad retirement taxes, if applicable) on wages paid by a qualified employer with respect to certain employment. The provision applies to wages paid beginning on the day after enactment (March 18, 2010) and ending on December 31, 2010. Under a special rule for the first calendar quarter of 2010, the exemption does not apply, but the amount by which the tax would have been reduced but for the special rule is credited to the employer in the second calendar quarter of 2010. The special rule was included in order to ease implementation of the payroll tax exemption.
Covered employment is limited to service performed by a qualified individual: (1) in a trade or business of a qualified employer; or (2) in furtherance of the activities related to the purpose or function constituting the basis of the employer’s exemption under sec. 501 (in the case of a qualified employer that is exempt from tax under sec. 501(a)).
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2. Qualified employer
A qualified employer is any employer other than the United States, any State, any local government, or any instrumentality of the foregoing. Notwithstanding the forgoing, a qualified employer includes any employer that is a public higher education institution (as defined in sec. 101(b) of the Higher Education Act of 1965).
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3. Qualified individual
A qualified individual is any individual who: (1) begins work for a qualified employer after February 3, 2010 and before January 1, 2011; (2) certifies by signed affidavit (under penalties of perjury) that he or she was employed for a total of 40 hours or less duringthe 60-day period ending on the date such employment begins; (3) is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; 351 and (4) is not a related party (as defined under rules similar to sec. 51(i)) of the employer).
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4. Employer election
A qualified employer may elect to not have payroll tax forgiveness apply. The election is made in the manner required by the Secretary of the Treasury.
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5. Coordination with work opportunity tax credit
Under the provision, a qualified employer may not receive the work opportunity tax credit on any wages paid to a qualified individual during the one-year period beginning on the hiring date of such individual, if those wages qualify the employer for payroll tax forgiveness under this provision unless the employer makes an election not to have payroll tax forgiveness apply with respect to that individual.
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6. Social Security trust funds
The Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund will receive transfers from the General Fund of the United States Treasury equal to any reduction in payroll taxes attributable to the payroll tax forgiveness provided under the provision. The amounts will be transferred from the General Fund at such times and in such a manner as to replicate to the extent possible the transfers which would have occurred to the Trust Funds had the provision not been enacted.
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351- It is intended that an employer may qualify for the credit when it hires an otherwise qualified individual to replace an individual whose employment was terminated, for cause or due to other facts and circumstances. For example, an employer may qualify for the credit with respect to wages paid pursuant to the reopening of a factory which had been previously closed due to lack of demand for the product being produced (i.e., the employer may qualify by rehiring qualified individuals who had in the past worked for the employer but were terminated when the factory was closed or by hiring qualified individuals who had not previously worked for the employer). In contrast, an employer who terminates the employment of an individual not for cause, but rather to claim the credit with respect to the hiring of the same or another individual is not eligible for the credit under this rule.
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