Understanding the Hiring Incentives to Restore Employment Act

On March 18, 2010, the President signed into law H.R. 2847, the Hiring Incentives to Restore Employment (HIRE) Act.

The bill includes a provision that encourages companies to hire unemployed workers by exempting certain wages from Social Security taxes.

HIRE Act Payroll Provisions

The centerpiece of the HIRE Act is a payroll tax holiday and a tax credit of up to $1,000 for businesses that hire unemployed workers. Under the act, an employer would be exempt from paying its share of 2010 Social Security taxes on any new hire who has been without full-time employment for at least 60 days, or one who worked fewer than 40 hours during the 60 days prior to beginning work and provides a qualifying signed statement (the IRS is currently developing this form). The employee must be an additional hire— not a replacement (unless the employee being replaced was terminated voluntarily or for cause), and must not be related to the qualified employer or anyone owning 50% or more of the stock or other capital of the employer.

Other provisions of the act include:

Employers who hire unemployed workers after February 3, 2010 and before January 1, 2011, may qualify for a 6.2% payroll tax holiday exempting their share of Social Security taxes on wages paid to these newly hired employees.

The exemption relates to salaries paid for work performed after March 18, 2010.

The maximum savings per employee can be as much as $6,621 or 6.2% of total wages paid in 2010 up to the $106,800 FICA wage cap.

This employer will still need to withhold the employee’s share (6.2%) of Social Security taxes as well as any other applicable tax.

The reduced withholding will not impact the employee’s future Social Security benefits.

The 941 for the first quarter will NOT reflect these “qualified” new hires and earnings and credits. There was simply not enough time for the IRS to implement new forms and procedures for the first quarter end of 2010, so eligible credit reductions for any wages paid March 19, 2010 through March 31, 2010 will be taken and reconciled with the second quarter 2010.

Business Tax Credit

Employers will also be eligible to receive a $1,000 income tax credit for every qualifying new employee retained for at least 52 weeks. The credit, which will constitute a General Business Credit, may be claimed on the 2011 tax return, and 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. Carrybacks of this credit are not allowed.

The IRS website has more information on the HIRE Act, including links to questions and answers about the act’s payroll provisions and the business tax credit. More information is added to the site as the IRS releases it.

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