More Payroll Tax Exemption FAQs

The payroll tax exemption FAQs are divided into the following three categories: (1) FAQs about the payroll tax exemption and qualified employers (QR); (2) FAQs about qualified employees (QE); and (3) FAQs about claiming the payroll exemption (PE).

When does employee begin work? The IRS notes that the HIRE Act does not address when an individual begins employment; therefore, general principles relating to employment apply. Under these general principles, employment includes the establishment, maintenance, and termination of the employer-employee relationship, all of which depend on the facts and circumstances. Accordingly, an individual begins employment on the date when, based on the facts and circumstances of the particular situation, the employer-employee relationship is first established.

Rehired employee. If an individual was previously employed by a qualified employer, then terminated, and subsequently rehired, the individual will be considered to have started employment on the date when, based on the facts and circumstances of the particular situation, the employer-employee relationship is reestablished [IRS FAQ QE 17, 7/23/10].

Qualified employee status. An individual who has been on furlough, standby status, or temporary layoff will be considered a qualified employee when he or she resumes active status only if the furlough, standby status, or temporary layoff, constitutes a termination of employment and, upon reestablishment of the employment relationship, the requirements to be a qualified employee are satisfied. Whether an employment relationship has been terminated is based on the facts and circumstances [IRS FAQ QE 18, 7/23/10].

The payroll tax exemption may be claimed on: (1) wages paid to an employee hired to replace a worker who terminated employment voluntarily, as long as the employee is otherwise a qualified employee; (2) wages paid to an employee hired to replace an individual who was terminated for gross misconduct, as long as the employee is otherwise a qualified employee; (3) wages paid to an employee hired to replace an individual who was terminated due to poor performance, as long as the employee is a qualified employee; and (4) wages paid to an employee hired to replace a worker whose employment was previously terminated as part of a reduction in force due to lack of work, if the employee is otherwise a qualified employee. The payroll tax exemption may also be claimed on an employee who was terminated as part of a reduction in force and then is subsequently rehired, as long as the rehired employee is otherwise a qualified employee [IRS FAQs QE 20-23, 7/23/10].

Self-employed individuals. For purposes of “qualified employee” status, work performed as a self-employed individual does not count in determining whether an individual has been employed for 40 hours or less during the 60-day period ending on the date before the individual begins employment [IRS FAQ QE 19, 7/23/10].

Minors. Minors may sign the HIRE Act employee affidavit (under penalties of perjury). Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, may be used for this purpose [IRS FAQ QE 24, 7/23/10].

Reporting agents. An employer is not required to provide copies of Form W-11 to its reporting agent. There are no specific payroll tax exemption procedures for employers that use reporting agents [IRS FAQ PE 25, 7/23/10].

Click this link to view the IRS HIRE Act Payroll Tax Exemption FAQs, as updated on July 23, 2010:  http://www.irs.gov/businesses/small/article/0,,id=220745,00.html

Claiming the exemption, updated July 29, 2010: http://www.irs.gov/businesses/small/article/0,,id=220750,00.html

Employees defined:  http://www.irs.gov/businesses/small/article/0,,id=220749,00.html