If your company participated in the HIRE Act’s 2010 payroll tax exemption there is important IRS information you need to know. Without becoming anyone’s tax advisor (I’m not), let me point out a thing or two from the IRS website. I strongly recommend that you go there yourself (and make sure your payroll services provider is fully informed!).
The first link is here: IRS FAQs About Claiming the Payroll Tax Exemption
A more general link is this: HIRE Act – Questions and Answers for Employers
First, something that has not been obvious to everyone. Compensation and tips subject to the payroll tax exemption must be reported on IRS Form W-2. I mention this requirement explicitly because it might affect your timing during the busy month of January.
For example, one large employer I work with processes their own payroll and W-2s in house. Their VP of Accounting informed me last week that they will be custom-programming their payroll system to handle this new requirement. Software programming, of course, requires time and it is a project that stands in the critical path of issuing timely W-2s to all their employees.
Here’s the IRS language from the IRS website
FAQ: Will employers have to indicate on the Form W-2 the qualified employees whose wages are exempt from the employers share of social security tax and/or separately report wages exempt from the employers share of social security tax?
IRS Answer A-PE24: Yes, new Code CC has been created for box 12 of Form W-2 for employers to identify qualified employees and report the amount of wages and tips covered by the payroll tax exemption. In addition, new box 12b has been created on Form W-3 to report the aggregate of Code CC.
Here’s another real dandy. I bet you didn’t know this.
FAQ: PE7: Is the payroll tax exemption based on when wages are earned by a qualified employee or when they are paid to a qualified employee?
IRS Answer A-PE7: The exemption is based on when wages are paid. Thus, only wages paid from March 19, 2010, through December 31, 2010, qualify for the exemption (regardless of when those wages are earned).
Go, check out the IRS website (links above). And send your payroll provider a copy of this post.
Happy New Year!