Hire an Unemployed Worker to Save on Payroll Taxes

When an employee gets a paycheck, he or she is quick to notice the difference between gross pay and net pay – the bulk of which is usually due to Social Security and Medicare taxes totaling 7.65% of their gross wages.  But what they don’t notice is that their employer also has to pay 7.65% on these wages.

Many business owners are hesitant to hire a new employee due to the heavy burden of payroll taxes.  To combat this, the government has passed a new law called the Hiring Incentives to Restore Employment (HIRE) Act.  This act provides two new benefits to employers who hire workers who were previously unemployed or who were only working part time.

The first benefit gives employers who hire qualified unemployed workers an exemption from paying Social Security taxes of 6.2% on wages paid to these workers after March 18th, 2010.  Employers would still need to withhold the employee’s share of Social Security taxes, and both the employer and the employee will still pay Medicare taxes.  The benefit will not impact the employee’s future Social Security benefits. 

The unemployed worker must be hired after Feb. 3rd, 2010 and before January 1, 2011 to qualify.  Each qualified employee must also provide a statement certifying that he or she worked no more than 40 hours during the 60 days prior to beginning work.  The IRS is working to create a form that employees can use to make this statement.

The second benefit is an additional business tax credit, up to $1,000 per qualified employee, that business may claim on their 2011 tax returns.  The workers must be retained for at least a year to be eligible for the credit.

These benefits are available to nearly all types of employers, with the exception of household employers.  Additionally, family members and other relatives do not qualify for the payroll tax exemption.

Employers will be able to claim the payroll tax benefit on the payroll taxes that they usually file with the IRS, beginning with the second quarter of 2010.  The IRS is preparing revised forms that should be available soon. 

Consult with your tax advisor to find out if you qualify for these tax benefits.


Tawni Berg, CPA
Seattle/Bellevue Tax Accountants

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.