With 2011 drawing to an end, now is the time to review any possible tax credits that your company might qualify for.  One such credit is the New Hire Retention Credit, which was included as part of the Hiring Incentives to Restore Employment Act of 2010 (HIRE).  The credit allows for up to a $1,000 credit each for an unlimited number of qualifying retained workers.

The credit applies to qualified employers for tax years ending after March 18, 2010, that hired and retained qualified workers during a consecutive 52-week period starting after February 3, 2010 and ending before January 1, 2011.  The credit amounts to the lesser of $1,000 or 6.2 percent of the employee’s wages paid for the 52-week period.  One major restriction, especially for those that rely heavily on seasonal work, is that an employee’s wages for the second consecutive 26-week period may not be less than 80% of the first consecutive 26-week period. 

In order for an employee to qualify, they must meet the following criteria:

•    Must begin employment after February 3, 2010, and before January 1, 2011
•    Must complete Form W-11 or a similar statement declaring that the employee was not employed more than 40 hours during the 60-day period prior to the hire date
•    Cannot be employed to replace another employee, unless the prior employee was terminated for cause or voluntarily terminated
•    Cannot be a relative of the taxpayer employer

The credit is considered a general business credit under Internal Revenue Code Section 38(b) and can be claimed in the year the 52-week period ends.  For partnership and S corporations, the credit can be claimed and will be passed through to owners on Schedule K-1.  In the case that the full amount cannot be used in the year claimed, any excess credit remaining cannot be carried back to any tax years beginning prior to March 18, 2010 but is allowed to be carried forward for 20 years.