On March 18, 2010, President Obama signed into law the “Hiring Incentives to Restore Employment Act” (“HIRE Act”). The principal purpose of the HIRE Act is to create an immediate incentive for businesses to hire unemployed individuals.
This is an executive summary of the key provisions contained in the HIRE Act. This information is not intended to provide tax advice regarding any individual or business’ particular situation.
If you have any questions regarding how the HIRE Act may apply to you or your business, please contact your RubinBrown advisor.
Hiring and Retention Tax Incentives
The centerpiece of the HIRE Act allows for payroll tax forgiveness and tax credits for hiring unemployed workers.
Payroll Tax Forgiveness
To help stimulate the hiring of workers by the private sector, the HIRE Act exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010.
A company can save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800 (the maximum amount of wages subject to Social Security taxes). This reduced tax withholding will have no effect on the employee’s future Social Security benefits.
$1,000 Employer Credit
As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on the payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 return.
To be eligible for the credit, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Comments and Planning Considerations
- The HIRE Act’s payroll tax forgiveness does not apply to Medicare tax;
- For workers that would otherwise be eligible for the “Work Opportunity Tax Credit,” the employer must select one benefit or the other – no double dipping is allowed
- An employer cannot claim the new tax breaks for hiring family members
- A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
- For the hiring to qualify, the new hire must sign an affidavit stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins. The IRS is currently developing a form employees can use to make the required statement.
Extension of Enhanced Small Business Expensing (Section 179)
The HIRE Act extends business expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years.
For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2009.
The HIRE Act contains other tax provisions which include:
- Direct payment options for certain tax credit bonds
- New tax withholding rules, disclosure statements, penalty provisions and state of limitation extensions regarding foreign account tax compliance.
A full summary of the bill is available here.
Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.
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