- There’s Still time to Take Advantage of the HIRE Act
- September 1, 2010 | Authors: Raj A. Malviya; Michael E. Stroster
- Law Firm: Miller Johnson - Grand Rapids Office
The Hiring Incentives to Restore Employment (HIRE) Act was only signed into law on March 18, 2010, but businesses need to act quickly to take full advantage of its benefits. Among other provisions, the new law provides immediate tax exemptions that diminish over time and will completely disappear by Jan. 1, 2011.
The HIRE Act is focused on providing incentives to combat unemployment and restore many of the jobs lost during the latest recession by providing tax incentives for businesses to hire unemployed workers. The law provides two valuable tax benefits (exemption and a credit) to employers that hire workers who were previously unemployed or only working part-time.
The tax exemption is available retroactively back to Feb. 3, 2010, with the goal of immediately enhancing employers’ cash flow. The credit is available to employers who retain their newly hired employees and can be taken in 2011.
WHICH EMPLOYERS ARE ELIGIBLE FOR HIRE ACT BENEFITS?
Both taxable businesses and tax-exempt organizations qualify for the payroll tax exemption and tax credit. This includes most for-profit entities, agricultural employers, and public colleges and universities. The HIRE Act specifically excludes local government employers and household employers.
WHAT TAX BENEFITS ARE AVAILABLE UNDER THE HIRE ACT?
Exemption from Social Security Taxes. If a qualified employer hires a qualified worker, the employer will be exempted from having to pay its 6.2 percent share of the Old Age, Survivors and Disability Insurance tax (commonly known as the Social Security payroll tax) on that employee for the remainder of 2010.
Business Tax Credit. For each qualified worker hired and kept on the payroll for a continuous 52 weeks, the employer is eligible for an additional business tax credit of up to $1,000 after the 52-week threshold is reached. This credit is taken on the employer’s 2011 income tax return. An additional requirement is that the employee’s pay in the second 26-week period must be at least 80 percent of his or her pay in the first 26-week period. The amount of the credit is the lesser of $1,000 or 6.2 percent of the gross wages paid during the continuous 52 week period.
WHO IS A qualified WORKER?
The employer will qualify for the HIRE Act tax benefits if the new employee:
was hired after Feb. 3, 2010 and before Jan. 1, 2011.
was not hired to replace another employee, unless:
the former employee voluntarily quit.
the former employee was terminated for cause.
is not a family member or controlling owner of the employer.
certifies by affidavit, under penalty of perjury, that he or she was unemployed or employed for 40 hours or less during the 60 days continuous period prior to starting work. (The IRS created a model affidavit for this purpose and it is available at www.irs.gov. )
In addition to these tax benefits, the HIRE Act extends federal highway funding, extends a small business expensing tax break, and establishes a new bond program for school and energy projects.
If you have any questions about the HIRE Act and whether your organization can benefit from its provisions, please contact the authors.