The
“Hiring Incentives to Restore Employment Act of 2010,” more commonly referred to
as the HIRE Act, was passed by Congress and recently signed into law by the
President. The Act provides employers with incentives to hire unemployed
individuals. The provisions of this new legislation apply to workers hired
after Feb. 3, 2010, but only for wages paid after March 18 (the date the
legislation was signed into law).
Payroll Tax Holiday
- The law 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’s wages for
the remainder of 2010. Thus, if the newly-hired and
previously-unemployed worker earns $106,800 after March
18, 2010 and before the end of the year, the company
could save a maximum of $6,621. This provides the
employer with an immediate benefit by reducing the
amount the employer must pay in employment taxes.
Retention Credit
- As an additional incentive, for any qualifying
employee hired under this initiative that the employer
keeps on payroll for a continuous 52 weeks, the employer
is eligible for an additional non-refundable tax credit
equal to the lesser of $1,000 or 6.2% of the wages.
Since the 52-week requirement cannot be met until the
subsequent year, the credit will be taken on the
employer’s 2011 tax return. In order to be eligible, the
employee's pay in the second 26-week period must be at
least 80% of the pay in the first 26-week period. This
credit is not available for domestic workers.
New Employee Qualifications
- Although there is no minimum number of hours that a
new employee needs to work in order to qualify for
either benefit, 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 isn't eligible for the benefit, unless the
prior employee left the job voluntarily or for cause.
The payroll tax holiday can be claimed for rehiring old
workers as long as that worker was terminated due to
facts and circumstances, such as a factory closure due
to lack of demand for the product.
Employee Documentation
– To validate the new hire for the benefits, an employer
must have the employee sign an affidavit, under
penalties of perjury, 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.
Interaction with the Work Opportunity Credit (WOTC)
– An employer must choose, on an employee-by-employee
basis, whether to claim the HIRE benefits or the WOTC;
double dipping is not allowed. The WOTC is in many
cases more valuable than the payroll tax holiday,
especially for low-wage employees, because it is
generally 40% of “qualified first-year wages” of up to
$6,000, for a maximum credit of $2,400 per worker.
The payroll tax holiday is equal to 6.2%
of wages, and applies only to wages paid through Dec.
31, 2010. However, the WOTC is harder to qualify for,
because the employee must be certified by an agency as
belonging to a targeted group. The main qualification
for a payroll tax holiday is that the employee has been
unemployed for 60 days, and the employee's affidavit is
sufficient for this purpose.
For more information on this topic and other
business-related issues, please give this office a call.
