Today I am giving you an overview of two key tax incentives for hiring unemployed workers in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act.
Payroll tax holiday. The new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010.
$1,000 retention credit. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. 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.
Employers are eligible to claim these tax benefits for workers hired after Feb. 3, 2010, but only wages paid after March 18 qualify for the payroll tax holiday. And, in order to give IRS more time to adjust its payroll tax forms for the payroll tax holiday, the holiday's tax forgiveness for the first quarter of 2010 will not be available until the second quarter of 2010. Some additional features of the new hiring incentives include:
• There is no minimum weekly number of hours that a new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010.
• An employer that is a sole proprietorship can't claim the new tax breaks for hiring certain relatives. An entity cannot claim the new tax breaks for hiring certain relatives of its more-than-50% owner.
• An employer can't claim the new tax breaks for a worker who replaces another employee who performed the same job for the employer unless the prior employee left the job voluntarily or was fired for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
The Act also provides that the credit isn't available for remuneration paid to domestic workers.
If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call me.