It is time for the 941 (payroll reporting) form to be completed for the 2nd quarter of 2010. 941s can be confusing to the new employer and with the new payroll forgiveness provision in the Hiring Incentives to Restore Employment Act its even more trouble. This provision gives employers who, after February 3rd, hire new employees who have been unemployed for the last 60 days (or worked less than 40 hour) a break on their matching taxes for those employees. Generally an employer matches the employee's Social Security and Medicare withholding. HIRE allows the employer to not pay their Social Security portion for the new hires. But some employers are getting it wrong.
According to a BNA article, the IRS is reporting that they are already seeing problems in 941s claiming the forgiveness. On the current 941, the total amount of Social Security and Medicare are calculated and then the forgiveness adjustment is made. Employers are putting the forgiveness on the wrong line. The IRS is also seeing math errors and EIN issues. The plan is for the IRS to try to correct the errors. If they can't, more info will be requested from the employer. If the employer doesn't respond, the iRS will void the forgiveness and process the 941 without it.
The IRS is also planning on doing some audits of the HIRE provision. The auditor can ask for anything but most likely they will want the employee affidavit that they meet the out of work requirements and proof that an employee was not terminated just to hire someone for the credit. Also expect some matching to insure that employers don't take the payroll forgiveness and the Work Opportunity Tax Credit for the same employee. (The qualifications for the WOTC are more restrictive than for the payroll forgiveness.) The WOTC rewards keeping the qualified new hires employed for 52 weeks. The max is the lessor of $1000 per employee or 6.2% of the wages they earned during those 52 weeks. You can take the payroll forgiveness or the WOTC but not both for the same employee. If you have taken the payroll forgiveness and than realize that the WOTC would have been a better credit, you can amend your 941s with the new 941X.
IRS info on the HIRE Act
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