HIRE Act: Incentives to Hire and Retain the Unemployed
Andrea Usry, CPA
In an effort to confront high unemployment, the Hiring Incentives to Restore Employment (HIRE) Act provides incentives for hiring and retaining unemployed workers. Under the HIRE Act, a qualified employer's 6.2 percent share of OASDI Social Security tax liability is forgiven for new hires, and a general business credit is allowed for each retained worker that satisfies a minimum employment period.
Payroll Tax Forgiveness for Hiring Unemployed Workers. The HIRE Act provides relief from the employer share of OASDI taxes on wages paid by a qualified employer with respect to certain covered employment. Covered employment is limited to service performed by a qualified individual in a trade or business of a qualified employer, or in the furtherance of the activities related to the purpose or function constituting the basis of the employer's exemption under Code Sec. 501. This provision applies to wages paid beginning on the day after enactment and ending on December 31, 2010.
Although a qualified employer does not include the United States, any state, any local government, or any instrumentality thereof, a qualified employer may include a public higher education institution.
A qualified individual is any individual who:
- Begins work for a qualified employer after February 3, 2010, and before January 1, 2011;
- Certifies by signed affidavit (under penalties of perjury) that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment begins;
- Is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and
Employers who qualify for the OASDI forgiveness in the first quarter of 2010 will receive the benefit through a credit toward general second quarter 2010 OASDI liability. After the first quarter, however, the employer does not pay the 6.2 percent tax as wages are paid.
A qualified employer may not claim the Work Opportunity Tax Credit (WOTC) on wages paid to an individual during the one-year period beginning on the hire date for the same wages used to qualify for the forgiveness of payroll tax. However, an employer may elect to not have payroll tax forgiveness apply.
Business Credit for Retention of Certain Newly Hired Individuals. Under the HIRE Act, an employer's general business credit is increased by the lesser of $1,000 or 6.2 percent of salary for each retained worker that satisfies a minimum employment period. The new credit can be claimed for any qualified employee (as defined for purposes of the payroll tax exemption) once the employee is employed for 52 consecutive weeks, so long as the employee's wages (as defined for income tax withholding purposes) for the last 26 weeks of employment equal at least 80 percent of the employee's wages for the first 26 weeks of employment. An employer may claim the new credit for a qualified employee even if the employer has also claimed the WOTC for the same employee.
Because payroll taxes are deductible as an ordinary and necessary business expense, employers may have a correspondingly smaller business expense deduction on their 2010 tax returns. By combining the benefit of the business credit for new hires with the forgiveness incentive, employers in the highest brackets will realize a net tax benefit of just over four percent of wages paid to qualified new employees, up to the $106,800 social security maximum wage base. Therefore, for the maximum $6,621.60 tax forgiveness for a new hire, a net benefit of approximately $4,304 would be realized.
If you have any questions regarding the hiring incentives under the HIRE Act, please call our office at your earliest convenience.