941 New Hire Issues Answered – Seasonal Employers Eligible

The IRS has been receiving incorrect Forms 941 for the 2nd Quarter 2010 when it comes to the new hire 6.2% Social Security payroll tax exemption.  It took me a moment to understand the difference between questions 6a and 6b on the Form 941.  Read it carefully!  The Form 941 is ACCUMULATIVE in reporting the number of NEW HIRE QUALIFIED employees CONTINUING TO QUALIFY on line 6b for the exemption as compared to those added each quarter on line 6a.   Fortunately for those with QuickBooks Payroll, the QuickBooks 941 “interview” screen asks the right questions, so that it is correctly stated on the Form 941.

The other question that came up last night when preparing a Form 941 for a seasonal employer was whether their employees meet the qualifications.  I didn’t see why not, because everything fit the definition.  They won’t qualify for the $1,000 tax credit in the future because the jobs won’t last.  Then this morning came this great news from yesterday’s IRS’s HIRE Act Webinar:

 “Seasonal employees. The IRS was once again asked if an employer can claim the payroll tax exemption on a seasonal worker. The IRS responded that the employer can claim the exemption if the employment relationship had ended prior to Feb. 4, 2010, and the employee was rehired after that date. For example, if an employee was on the payroll in the Spring and Summer of 2009, terminated in the Winter of 2009, and then rehired after Feb. 3, 2010, the employer would be able to claim the payroll tax exemption on that employee if the employee met all of the requirements to be a “qualified individual.” For purposes of the HIRE Act, a “qualified individual” is anyone who:

1.      begins work for a qualified employer after Feb. 3, 2010 and before Jan. 1, 2011;

2.      signs Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, or other similar statement certifying, under penalties of perjury, that he or she had not worked more than 40 hours during the 60 days prior to beginning employment;

3.      is not employed to replace another employee of the employer unless that former employee separated from employment voluntarily, or for cause; and

4.      is not related to the employer (under rules similar to those for related individuals in IRC §51(i)) [IRC §3111(d)(1)].

Part-time employees. The IRS also stated that an employer may be able to claim the payroll tax exemption on a part-time employee if he or she meets the qualified individual requirements noted above. An employer may also be able to claim the retention credit on a part-time employee if the employee meets the qualified individual requirements”

Keep in mind that the IRS will be examining returns with the payroll tax exemptions and they will expect employers to have the backup documentation with signed Forms W-11 and the underlying payroll earnings records, and they may even request signed statements from the employer on the reason for the available job, to make sure that someone wasn’t let go to make room for a payroll tax exemption!