Payroll Tax Exemption for New Hires

Employers who hire previously unemployed workers may be exempt from paying the employer's share of Social Security taxes for 2010 under the HIRE Act.

Social Security taxes are a flat 12.4% of the first $106,800 of a person's wages, salary or self-employment income. Employers pay half (6.2%) and employees pay half (the other 6.2%). For 2010 only, employers who hire previously unemployed or underemployed workers may be exempt from paying the employer's half of Social Security taxes through the end of 2010.

Qualifying for the Social Security Tax Exemption

An employer can qualify for exemption from paying the employer's half of Social Security taxes by hiring an employee who

• begins employment after February 3, 2010, and before January 1, 2011,
• was unemployed or employed for less than 40 hours during the 60-day period ending on the date that employment begins, and
• is not a family member related to the employer or owns more than 50% of the business.

Employers must obtain certification from the employee that he or she was unemployed or employed for less than forty hours during the sixty days prior to the hire date using Form W-11 [PDF]. This form must be retained by the employer with their payroll and tax records to substantiate their eligibility for the Social Security tax exemption.

Employers who continue to employ these new hires for at least one full year may become eligible for the New Hire Retention Tax Credit.