HIRE Act Becomes Law

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act. The HIRE Act provides $17.6 billion in tax provisions including $13 billion in tax breaks for hiring and retaining qualified workers. (The HIRE Act also increases the expensing limitations and expands the Build America Bonds program.) Congress offset the costs of these tax benefits by increasing the disclosure and withholding requirements for certain foreign accounts and assets, increasing certain estimated tax payments for large corporations, and delaying the implementation of a law intended to help multinational taxpayers avoid double taxation on interest income. The following summarizes many of the tax provisions in the HIRE Act.    

Payroll Tax Benefits for Employers

The HIRE Act contains two hiring incentives in the hopes of stimulating employment. The first incentive is in the form of a payroll tax exemption and the second incentive is an increased business tax credit.

1.    Payroll Tax Exemption: The HIRE Act amends the Internal Revenue Code by adding a payroll tax exemption for certain qualified individuals. Specifically, the HIRE Act exempts private sector employers from having to pay the employer's share of Social Security payroll tax (6.2%) with respect to the wages of each qualified individual from March 19, 2010 through December 31, 2010.

For purposes of the HIRE Act, a qualified individual is any person who (1) begins work for the employer after February 3, 2010 and before January 1, 2011, (2) certifies by signed affidavit, under penalties of perjury, that such person has not been employed for more than 40 hours during the 60 day period ending on the date the employment begins, (3) is not employed to replace another employee of such employer unless such other employee separated from employment voluntarily or for cause, and (d) is not a related party to the employer.

The HIRE Act also contains a prohibition preventing an employer from "double dipping" by receiving the work opportunity tax credit on any wages that qualify for the payroll tax exemption. An employer may, however, still receive the work opportunity tax credit pursuant to Section 51 of the Code on any wages that would qualify for the payroll tax exemption by electing not to have the payroll tax exemption apply to that individual.

Keep in mind that once a quarter has ended, you cannot go back retroactively and utilize the payroll tax credit for that past quarter. For example if you hired a qualified employee May 1 and did not utilize the credit in the months of May or June, now that the 2nd quarter is over, you cannot go back and utilize the credit. If the employee is still in your employ, you can utilize the credit going forward until the end of the year.

Increased Business Tax Credit: The HIRE Act increases an employer's general business tax credit by the lesser of (1) $1,000, or (2) 6.2% of the wages paid by the employer to each retained worker during the 52 week period after the retained workers hire date.

For purposes of the HIRE Act, a retained worker is any qualified individual (as defined above with respect to the payroll tax exemption provision the HIRE Act who (1) is employed by the employer on any date during the taxable year, (2) who was employed by the employer for at least 52 consecutive weeks, and (3) whose wages during the last 26 weeks of such period are at least 80% of the wages for the first 26 weeks such period. The HIRE Act does not allow the increased business tax credit to be carried back to a prior taxable year.
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The IRS will not start taking this tax credit into account (by adding additional reporting lines to the 941) until the second quarter of 2010 even though you may have qualified wages paid in the first quarter. The second Qtr 941 will take this situation into account. The IRS has developed a qualified affidavit statement form that can be filled out by new employees declaring their eligibility for the credit based on their employment history. Here is a link to that form.

While this credit can amount to thousands of dollars in payroll tax savings, many question whether it will really stimulate new employment as the cost of new hires far exceeds the savings created by the credit especially if it is for a position that is really not needed. If you have any questions regarding this payroll tax credit, how you can take advantage of it and what you need to do to comply, Let Time & Pay make sure you take advantage of these potential savings to your bottom line. Call one of our representatives at 423-854-9042.