In-Depth Articles
2010 HIRE Act: Incentives to Hire and Retain the Unemployed
In an effort to confront high unemployment, Congress passed the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010 to provide incentives for hiring and retaining unemployed workers. Under the HIRE Act, a qualified employer's 6.2 percent share of the FICA-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 FICA-SS taxes on wages paid by a qualified employer with respect to certain covered employment. A qualified employer can be either a for-profit or a not-for-profit entity including state colleges and universities but not including federal and state agencies, school districts or household employees. 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 March 19, 2010 and ending on December 31, 2010.
A qualified individual is any individual who:
1. begins work for a qualified employer after February 3, 2010, and before January 1, 2011;
2. certifies by signing a new Form W-11 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;
3. is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and
4. is not a related party.
Employers who qualify for the tax forgiveness in the first quarter of 2010 will receive the benefit through a credit applied to their Federal second quarter 2010 payroll tax liability; they could not simply stop paying the 6.2 percent FICA-SS tax immediately on wages paid to new hires. After the first quarter, however, the employer does not pay the 6.2 percent tax as wages are paid.
A qualified employer may not receive the work opportunity tax credit 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 this payroll tax forgiveness apply.
Business Credit for Retention of Certain Newly Hired Individuals
Additionally, 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. Generally, a retained worker is an individual who is a qualified individual as defined for purposes of the provision for payroll tax forgiveness.
However, the credit is available only with respect to such individual, if the individual:
1. is employed by the employer on any date during the tax year;
2. continues to be employed by the employer for a period of not less than 52 consecutive weeks; and
3. receives wages for such employment during the last 26 weeks of such period that are at least 80-percent
of such wages during the first 26 weeks of such period.
Therefore, an employer will qualify for the full $1,000 credit for each new hire with a salary over the 52 week retention period of at least $16,129. An employer that hires some part-time new employees, in addition to full-time employees, is entitled to the full $1,000 credit, if, of course, the part-time or full-time employee decides to stay for 52 weeks.
What Every Employer Should Do
In order to make certain that you do everything you need to maximize your benefit you should remember to do the following:
1. have every qualifying new hire complete the new Form W-11 affidavit to state their previous unemployed status;
2. document employees hired after February 3, 2010 and before January 1, 2011;
3. document wages paid to qualified employees from March 19, 2010 until December 31, 2010; and
4. follow up on these employees after a year to verify qualifying longevity for retention credit.
Whether you maintain your own payroll records, or do so with the help of Hughes, Snell & Co., P.A., being aware of the new opportunities as well as what you need to do to take advantage of them is the first step in obtaining the maximum benefits allowed under the law.
If you have any questions regarding the hiring incentives under the HIRE Act, please call our office at your earliest convenience.
To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used for the purpose of avoiding penalties assessed under the Internal Revenue Code.
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