Jobs for unemployed can yield tax credits under new HIRE Act
PRESIDENT OBAMA signed into law the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010, and employers should take note.
As the name implies, the act is intended to reduce unemployment and help stimulate the economy by providing hiring incentives to employers. The act also addressed an expired expensing provision.
No ‘old age’ tax credit
The act created an exemption for any private and not-for-profit sector employer (besides household employers) who hires a worker who had been unemployed for at least 60 days from having to pay the employer’s Old Age, Survivors and Disability Insurance (6.2 percent) share of the Social Security payroll tax for that employee. The provision applies to part-time workers but does not apply to the self-employed for their own self-employment tax no matter how many hours the self-employed person works.
The employee must certify with a signed affidavit that he/she was not employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the qualified employer. Newly released IRS Form W-11 was created for this purpose.
The provision can apply to rehiring former workers as well as workers who have not previously worked for the employer. However, it does not apply when the new worker replaces a worker whose position was terminated without cause unless there was a legitimate nontax business purpose for the dismissal, such as a downsizing.
It also does not apply when the worker is a family member of a business owner who has more than a 50 percent interest in the company. Family member for this purpose is defined as siblings, parents, grandparents, children or grandchildren, including step and in-law relationships or a dependent, even if unrelated. When calculating the 50 percent threshold one must include with their own interest the ownership of certain family members under the family attribution rules.
The amount of Old Age, Survivors and Disability Insurance tax on qualifying first quarter wages is allowed as a credit on the employer’s second quarter payroll tax return.
A long-time tax incentive called the work opportunity credit has the goal of rewarding employers for hiring out of specified targeted groups, one of which is the unemployed. However, the same wages cannot qualify the employer for both the work opportunity credit and the payroll tax holiday. The work opportunity credit is only available in this situation when the employer elects out of the payroll tax holiday.
The relief is effective for wages paid March 19, 2010, through December 31, 2010, for employees hired February 4, 2010, through December 31, 2010.
Tax Credit for retention
As an added incentive to hire employees, a worker who qualifies the employer for the payroll tax holiday may qualify the employer for an additional tax credit of up to $1,000. To do so the employer must retain the employee on the payroll for a continuous 52-week period. Also, the employee’s wages for income tax withholding purposes during the last 26 weeks must be at least 80 percent of the employee’s wages for the first 26 weeks.
The credit is limited to the lesser of $1,000 or 6.2 percent of the wages paid by the employer to the retained worker during the 52-consecutive-week period. The employer is eligible for the credit in the tax year when the 52-week period is first satisfied (tax year 2011 for calendar year companies). The credit cannot be carried back, but it can be carried forward up to 20 years.
The act extends the increased 2009 section 179 expensing limit for 2010. The limit can allow a current write-off of up to $250,000 on qualifying property. The expensing limit is reduced on a dollar for dollar basis when property placed in service during the tax year exceeds $800,000.
Many economists and policy experts tout a reduction in unemployment as the key to lifting our nation out of its current recession. With the HIRE Act Congress attempts to spur a much- needed growth in jobs and the economy.
Steven Warren,
Lehrman Flom & Co.:
952.546.5306
sw@lehrmanflom.com
www.lehrmanflom.com
