New 2010 HIRE Act Provides Incentives for Businesses

by Rick Dougherty, CPA

On March 18, 2010 President Barack Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847). This act contains several provisions which seek to provide employers with incentives to hire and retain workers. The major provisions of the new law are as follows:

Payroll tax holiday. Private-sector employers that hire a "qualified individual" who had been unemployed for at least 60 days are exempt from having to pay the employers' 6.2% share of the Social Security payroll tax on that individual for the remainder of 2010. An employer could save a maximum of $6,621 if it hired an unemployed individual and paid the individual at least $106,800-the maximum amount of wages subject to Social Security taxes-by the end of the year.

What is a "qualified individual"?

Individual must begin employment after February 3, 2010 and before January 1, 2011.

Individual must not have been employed for more than 40 hours during the 60 day period that ends on the date that individual begins employment.

Individual cannot displace a current employee unless that employee was separated from employment voluntarily or for cause.

Individuals who are related to the employer or who directly or indirectly own more than 50% of the business are not eligible.

Individual may be hired for any number of hours, full-time or part-time. No minimum or maximum number of hours is required.

Individual must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins.

Will employers see cash savings before April 1, 2010?
The payroll tax holiday does not apply with respect to wages paid during the first calendar quarter ending March 31, 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the first calendar quarter is credited against the tax imposed on the employer for the second calendar quarter beginning April 1, 2010.

Retained Worker Business Credit. An employer that hires an individual qualifying for the payroll tax holiday provision, and keeps that individual on the payroll for at least 52 consecutive weeks, may be eligible for a Retained Worker tax credit for that qualifying individual. The employer may be eligible for this non-refundable tax credit, which will generally be taken on the employer's 2011 income tax return, for an amount up to the lesser of $1,000 or 6.2% of wages paid by the employer to the qualified individual during a period of 52 consecutive weeks.

What are additional qualifications for the Retained Worker tax credit?

A qualifying individual must be paid an amount equal to at least 80% of his or her first 26 weeks of wages during the last 26 weeks of the 52 consecutive week period.

A qualifying individual must stay on the job for at least the 52 consecutive week period to entitle the employer to the credit.

Domestic workers or individuals eligible for the foreign earned income exclusion are not qualifying individuals for the credit.

Extension of IRC Section 179 enhanced small business expensing. The new law renews enhanced expensing rules for 2010, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, including off-the-shelf computer software, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009.

The 2010 HIRE Act also contains additional provisions which may benefit small business employers. The legislation can be viewed in full online: 2010 HIRE Act.

If you would like to discuss the provisions of this new law in more detail, please do not hesitate to contact Baratz & Associates, P.A.