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Reemployment Act of 2010 FAQ

What are the requirements for an individual to qualify as an “unemployed person” in order for an employer to be allowed to claim this deduction?
The employee must be drawing unemployment or have unemployment benefits that have expired at the time that the employee is hired.

Does an employer have to certify an employee with the Alabama Department of Revenue (ADOR) by proving the unemployment status of the employee or reporting the employee on a form?
The employer must certify the unemployment status of an employee before the deduction can be claimed on the employer’s Alabama income tax return. This certification can be any type of document that includes all of the following information:

  • Employee’s name and Social Security Number
  • Employee’s first date of employment (date hired by the employer)
  • A statement that the employee was drawing unemployment compensation or that the benefits had expired at the time hired
  • Employee’s signature

The employer does not need to attach or send the verification to ADOR with the tax return. The employer must retain the documentation with the employer’s tax records in order to verify the deduction if requested by ADOR in an audit or examination of the employer’s return.

Can an employee who was laid off and then rehired qualify?
An employee who was laid off can be rehired by the same employer if sufficient time has elapsed between the date that the employee was laid off and the date that the employee was rehired. The Act does not address this issue, but in order to avoid abusive or fraudulent deductions, ADOR will look unfavorably on a rehire situation where the employee had been laid off for less than six months.

What is the starting date for an employee to qualify?
The starting date for the employee to qualify is the hire date, and the employee must be continuously employed by the employer for 12 months before the deduction can be claimed.

The Act says that the deduction is available for 2011 and 2012 – what does that mean?
After an employee has been continuously employed for 12 months, the employer will be allowed to claim the deduction, one time per employee, on either the employer’s 2011 or the employer’s 2012 return (for an employee hired during 2010 or 2011).

How is the deduction calculated?
To calculate the income tax due, the employer may claim a deduction from income for 50% of the gross wages paid to an unemployed person if the wages are $14 or more per hour. The deduction is limited to 40% if the wages paid are between $12 and $14 per hour. If the wages paid are between $10 and $12 per hour, the deduction is limited to 35% of the gross wages paid.

Is there a deduction allowable to an employer if the gross wages paid to an unemployed person are less than $10 per hour?
There is no deduction allowable under this Act to employers who hire employees for jobs paying less than $10 per hour.

Are there any other requirements under this Act to be met in order for the employer to claim the deduction for gross wages paid to an unemployed person hired by the employer?
The job filled by the unemployed person who is hired must be a full-time job. No deduction is allowable under this Act to an employer who hires an unemployed person to work less than 37.5 hours per week.

Can the employer get a refund of this deduction?
No, the deduction is not refundable or transferable.

Is the deduction available to employers that qualify as partnerships, LLC’s, or S corporations?
The deduction is available on a pro rata basis to all owners of qualified employers that are entities treated as sub-chapters S or K under the Internal Revenue Code.

What impact did the Full Employment Act of 2011 (2011-551) have on the Reemployment Act of 2010?
The Reemployment Act of 2010 generated a corporate income tax deduction of 50% of the wages of jobs that were created for unemployed persons, and the deduction is allowed only on the 2011 or 2012 income tax returns.

The Full Employment Act of 2011 created a corporate income tax credit for each new job created, and became effective for tax years after January 1, 2011.

Therefore, employees hired in 2011 could theoretically be counted toward the Full Employment Act as a deduction, and the Reemployment Act as a credit. However, the Department will only allow an employer the use of one of the incentives.

Is there any other guidance or information available on the new law?
ADOR is working on a regulation to include the above issues, but employers may follow the advice provided on the website until the regulation can become effective.