Hire Tax Credit for Employers of Medical Residents
The Law Change
On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. Some hospitals have taken advantage of the employment credits found in the HIRE Act, but many hospitals have not considered that medical residents that began employment after February 3, 2010 and before January 1, 2011 may be qualified employees and therefore the hospital may be eligible for an exemption of the employer share of OASDI tax (6.2%) on the wages paid to qualified medical residents during the period from March 19, 2010 to December 31, 2010. For hospitals with large medical resident programs, the law change could have a significant impact as more fully described below.
Payroll Tax Forgiveness
The Act exempts from the employer share of OASDI tax (6.2%), those wages paid by employers to qualified individuals during the period from March 19, 2010 to December 31, 2010. Qualified employers do not include federal, state, or local government employers, but do include tax-exempt organizations under Internal Revenue Code (“IRC”) section 501(a), businesses, and public institutions of higher education.
This incentive is available to qualified employers hiring individuals who:
- Begin employment after February 3, 2010, and before January 1, 2011;
- Certify by signed affidavit that they were employed for no more than 40 hours during the 60-day period ending on the date they begin the new employment;
- Are not employed to replace another employee for reasons other than voluntary or for-cause termination; and
- Are not related to the employer.
Business Retention Credit
The Act provides a general business credit under IRC section 38(b) equal to the lesser of $1,000 or 6.2% of the wages paid by the employer over 52 consecutive weeks for each worker that qualifies for the payroll tax exemption and:
- Is employed on any date during the taxable year;
- Is employed for at least 52 consecutive weeks; and
- Is paid wages during the last 26 weeks of that 52-week period equal to at least 80 percent of wages for the first 26 weeks of the period.
National Federal Tax Services — Federal Incentives & Credit Services
The Deloitte Difference
Deloitte’s Federal Incentives & Credits Services (FICS) practice is a nationally focused team that offers experience in the qualification, quantification, documentation, and ongoing compliance of credits and inventive programs. Deloitte’s FICS practice has helped clients explore, apply for, utilize, and monetize federal incentives and credits for a wide range of credit and incentive programs. Deloitte’s FICS practice is ready to help your company regarding the HIRE Act provisions with services such as:
Qualification and benefit estimation
- Analyze requirements of qualified employer provisions in light of employer’s operations, and advise employer on meeting requirements.
- Estimate number of qualified employees and assist employer in quantifying potential credit
- Draft communication that explains the process for employer’s distribution to potential qualified employees.
- Prepare Forms W-11 for employer to provide to potential qualified employees.
- Work with employer to facilitate the process of obtaining signed Forms W-11 in a timely manner.
- Analyze completed Forms W-11 regarding qualification for the program.
Amended returns/Amended W-2c
- Prepare amended returns — Form 941-X.
- Assist employer in gathering information (e.g., name of qualified employee, amount of wages paid to the qualified employee, for which the payroll tax exemption was claimed, etc.) that will be used to prepare the amended Forms W-2c’s, with revised information to be included in Box 12 using Code CC.
- Draft communication to explain the amended Form W-2c process for employer to provide to qualified employees.
Document tax position
- Prepare technical memorandum to support position taken.
Please download the attached article to learn more about Deloitte FICS contacts.