On March 18, 2010, the President signed the HIRE Act into law, which became effective immediately. This new law provides incentives for hiring and retaining workers; a one year extension of enhanced Code section 179; and some other various changes. This brief synopsis will focus on the Hiring and retention tax incentives.
Hiring/Retention Tax Incentives
Payroll Tax Exemption
For new workers hired and wages paid after March 18, 2010 and before January 1, 2011, the HIRE Act provides the employer relief from the employer share of OASDI or Social Security (6.2%) to qualified employees.
A qualified employer is any taxable business and tax-exempt organizations (other than the government and its subdivisions), public college and university. A qualified employer does not include an individual hiring household employees, as that individual does not constitute a business.
A qualified employee is an individual who was hired after February 3, 2010 and before January 1, 2011, who certify that they were employed for no more than forty (40) hours in the sixty (60) day period ending on the date that the individual begins employment. The IRS has issued Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit and can be downloaded from
http://www.IRS.gov. A qualified employee may be hired for any number of hours, full-time or part-time, since the benefits to the employer are tied to 6.2% of any salary paid. The qualified employee cannot displace a current employee unless that employee was separated from employment voluntary or for cause. Additionally, employees who are related to the employer or who directly or indirectly own fifty (50%) percent of the business are not eligible.
Note: An employer may not claim the above payroll tax exemption and the Work Opportunity Tax Credit with respect to any wages in the period March 19, 2010 to December 31, 2010.
The payroll tax exemption is claimed on Form 941, Employer’s Quarterly Federal Tax Return, beginning in the second quarter 2010.
Credit for Retained Workers
Any worker who qualifies under the payroll tax exemption may also qualify the employer for a credit of up to $1,000 if that worker is retained as an employee for at least 52 weeks.
A worker is retained if that worker’s salary is equal to 80% of his first 26 weeks of wages during the last 26 weeks of the 52 consecutive week qualifying period. The law also excludes wages earned by a domestic worker or and individual eligible for the foreign earned income exclusion.
The business credit, if eligible, is equal to the lessor of $1,000 or 6.2% of wages paid by the taxpayer to the qualified retained worker during the 52 consecutive week period. The new hire retention credit will be claimed on the employer’s 2011 income tax return.
California does not conform to the above changes.
© 2010 Cherie D. Putman, CPA 5/7/10
