The Hiring Incentives to Restore Employment (HIRE) Act

On March 18, 2010 President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. The HIRE Act was enacted to provide tax credits for employers willing to expand their workforce by hiring individuals who are unemployed or only working part time. This law provides two opportunities for tax credits:

• Social Security Tax Holiday - Employers who hire unemployed workers this year (after February 3, 2010 and through December 31, 2010) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employees' shares of Medicare taxes would also still apply to these wages.
• General Business Tax Credit* - In addition, for each worker retained for at least a year, businesses may claim a general business tax credit, up to $1,000 per worker, when they file their 2011 corporate income tax returns.  The employee must be hired after February 3, 2010 and be employed for at least 52 consecutive weeks. Wages during the last 26 weeks must be at least 80 percent of the wages paid for the first 26 weeks.
  
  *PCS does not apply this credit as it is a credit on your business tax return.

Currently, the credit is available for eligible new hires made between February 3, 2010 and December 31, 2010. All credits must be applied to 2010 check dates. The maximum credit for each employee is $6,621.60 (Social Security wage max $106,800 x 6.2%).

An employee is eligible if he/she:

• Begins employment between February 3, 2010 and December 31, 2010. Additionally, only the wages earned with a check date of March 19, 2010 to December 31, 2010 are eligible for the credit.
• Has not been employed for more than 40 hours during the previous 60 days. The individual must sign an affidavit , under penalty of perjury, attesting to the employer this fact. The Government has published form W-11, an affidavit to help employers with this step. You can download form W-11 off of the IRS website or click here.
• Is not hired to replace another employee unless the previous employee was separated from employment voluntarily or for cause. Additional restrictions may apply for seasonal employment.
• Is not related to the employer in one of the following ways: son, daughter, or descendant of either; stepson or stepdaughter; brother,sister, stepbrother, stepsister; father, mother, or ancestor of either; stepfather or stepmother; niece or nephew; aunt or uncle; or the following in-laws: son, daughter, father, mother, brother, or sister.

All employers, except certain governmental employers, may be eligible for these tax benefits. State universities and colleges are eligible for the benefits even though they are government employers.
To learn more about the HIRE Act click here.

To take advantage of these tax benefits, employers should identify all current employees who may meet the requirements of a qualified employee and ask each such employee to sign the affidavit described above. Additionally, employers should ask each newly hired employee through the end of the year to sign an affidavit as well. 

PCS is currently working on adjusting our payroll system to reflect the OASDI payroll tax holiday and to take a credit for the first quarter OASDI taxes that are paid but that would otherwise be subject to the holiday rules.  In addition the IRS federal form 941 is being modified according to IRS specifications for the 2nd quarter of 2010.

We have also developed a HIRE Act Wizard which will ask specific questions and provides guidance as to whether you may have an eligible employee.  Click here to launch the wizard.

For the latest updates on the HIRE Act click here.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional. In addition, this new law is expected have on-going updates. (Rev. 3/28/10)