The Internal Revenue Service has issued the newly revised payroll tax form that most eligible employers can use to claim the special payroll tax exemption that applies to many new workers hired during 2010.  Designed to encourage employers to hire and retain new workers, the payroll tax exemption and the related new hire retention credit were created by the Hiring Incentives to Restore Employment (HIRE) Act signed by President Obama on March 18, 2010.

Employers who hire unemployed workers this year (after February 3, 2010, and before January 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from the employer’s share of Social Security tax on wages paid to these workers after March 18, 2010. This reduction will have no effect on the employee’s future Social Security benefits. The employee’s 6.2 percent share of Social Security tax and the employer and employee’s shares of Medicare tax still apply to all wages.

Form 941, Employer’s Quarterly Federal Tax Return, revised for use beginning with the second calendar quarter of 2010, will be filed by most employers claiming the payroll tax exemption for wages paid to qualified employees. The HIRE Act does not allow employers to claim the exemption for wages paid in the first quarter but provides for a credit in the second quarter. The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return.

In addition, businesses may claim a new hire retention credit of up to $1,000 per worker on their income tax return for each qualified employee retained for at least a year. Further details on both the new hire retention tax credit and the payroll tax exemption can be found at www.irs.gov, in a recently-expanded list of answers to frequently-asked questions about the new law.