Nonprofits can save the cost of payroll taxes through 2010

NYCON's national partner, the National Council of Nonprofits, has provided the following information for nonprofits:

On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act (HIRE Act), a $17 billion jobs package that includes temporary tax incentives to encourage employers to hire new workers. The main job-creation incentive allows most employers, including nonprofits, to keep the 6.2 percent payroll taxes on certain new hires, thus lowering their cost. This payroll tax forgiveness provision expires at the end of the year, so nonprofits will save more the sooner they hire eligible unemployed workers.

What You Need To Know:

The IRS released a statement on their newswire and posted general answers on their website offering a brief outline of the credit. Here are answers to the five key questions that most nonprofits need to know:

1.Is my nonprofit eligible? Yes. All 501(c) nonprofits are eligible.

2.Who do I need to hire to get the credit? There are four criteria that apply to any person hired after February 3:
a.The individual must sign a new IRS Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, certifying that he/she has not worked more than 40 hours in the previous 60 days. (The IRS is currently developing a form employees can use to make the required statement.)
b.The new hire cannot replace an existing employee. It is okay to fill vacancies for individuals who left voluntarily or for cause. It is also permissible to rehire a laid-off employee who otherwise qualifies as an eligible employee.
c.The new hire is not related to a fiduciary of the organization.
d.The work the employee is doing must be in furtherance of the employer’s tax-exempt purpose.

3.How do you claim the credit? Employers claim the payroll tax exemption on their quarterly Form 941, beginning with the second quarter of 2010. The credit applies to the employer’s 6.2 percent share of social security tax on all wages paid to qualified employees. The employee’s 6.2 percent share of social security tax and both the employer’s and employee’s shares of Medicare taxes still apply to all wages. The IRS has posted a draft form 941 on its website and will release a final form next month along with the form’s instructions.

4.How long can I claim the credit? March 19 through December 31, 2010. As an example, for a person who starts work on April 1, the nonprofit keeps the payroll tax money that would otherwise be withheld, amounting to a savings of $1860 for someone with an annual salary of $40,000 (savings of 6.2% payroll taxes on $30,000 which is 9 months of salary).

5.Can I claim the $1000 bonus if the employee stays on the payroll for 52 weeks? Normally, no. The law includes a $1000 bonus credit that can only be applied to business income tax liability. Nonprofits are exempt from this liability, except in the area of unrelated business income.

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