Employers Express Concern about IRS Delay in Processing HIRE Act Payroll Tax Exemption on Amended Returns

On the February 3 IRS payroll tax teleconference call, Debera Salam, Director of Payroll Information and Process Services for Ernst & Young LLP, informed the IRS that several of her clients who recently filed Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, to claim the payroll tax exemption in the Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147) have received letters from the IRS stating that there is a backlog in processing these returns and the returns may not be processed for several months. The payroll tax exemption relieves employers from their share of OASDI taxes (6.2% rate) on wages paid to certain new hires from March 19, 2010 to Dec. 31, 2010. The exemption could not be claimed on Form 941 until the second quarter of 2010. Some employers amended their returns using Form 941-X rather than claiming the exemption on an original Form 941.

The IRS delay in processing the returns is a concern for employers because they have reduced their payroll tax deposits to take into account the credit. It is possible that they will receive an IRS notice proposing a federal tax deposit penalty if the amended return is not taken into account. The IRS said that it will look into this matter.

Salam also noted that the IRS is rejecting Forms 941-X that are filed for the first quarter of 2010 since the payroll tax exemption could not be claimed on Form 941 until the second quarter. (The second quarter return included the payroll tax exemption for the period from March 19 to March 31, 2010.)