2010 Hiring Incentives to Restore Employment (HIRE) Act


President Obama recently signed The Hiring Incentives to Restore Employment (HIRE) Act to provide employers with tax incentives to hire unemployed workers. The HIRE Act is the first of a series of bills that the Obama administration and Congress plan to introduce to reduce the unemployment rate.

Payroll Tax Break for Employers
The centerpiece of the HIRE Act is a new payroll tax exemption to provide employers with incentives to hire and retain new employees. Normally, an employer is required to pay its share of Social Security taxes on wages earned by employees. For 2010, the portion of the tax is 6.2 percent on the first $106,800 of wages.

Under the HIRE Act, an employer is effectively excused from paying its share of the 6.2 percent tax on wages received by "qualified employees." This exemption applies to wages paid after the date of enactment (Feb 3, 2010) through the end of 2010. The maximum value for each qualified employee is $6,621.

Example: If a qualified employee is hired in March and receives $50,000 in wages in 2010, the employer saves $3,100 (6.2 percent of $50,000) in Social Security tax.

The new law defines a "qualified employee" as someone who meets all of these criteria:

• Begins work after February 3, 2010 and before January 1, 2011.
• Has not been employed for more than 40 hours during the previous 60 days (ending on the start date).
• Was not hired to replace another employee unless the former employee separated from employment voluntarily or for cause.
• Is not related to the employer and does not own more than 50 percent of the business, either directly or indirectly.

Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010. Employers entitled to tax relief for the first quarter will be credited against their general Social Security liability for the second quarter. Employers must get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked less than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

A qualified employee may be either a full-time employee or a part-time employee. There is no minimum requirement for the hours worked. The payroll tax forgiveness does not apply to the 1.45 percent Medicare portion of payroll tax. There is also an additional $1,000 income tax credit for every new employee retained for 52 weeks.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

One other important note for small businesses, the bill extends Recovery Act provisions that double the amount small businesses can immediately write off their taxes for capital investments and purchases of new equipment made in 2010 from $125,000 to $250,000 (known as section 179 deduction).

We will continue to provide more information as details come out. In the meantime, if you would like to discuss how the HIRE Act applies to your particular situation, please contact a member of your service team or send questions to coheninfo@cohencpa.com.