2010 Hiring Incentive Tax Act Briefing
We thought this follow up briefing would be helpful in addressing additional questions we have been receiving about the recently-passed Tax Act on hiring incentives. Called the Hiring Incentives to Restore Employment (HIRE) Act, this legislation creates an immediate incentive for businesses to hire unemployed individuals. It also extended the $250k Section 179 expensing election through 2010 for business asset purchases, and it added additional foreign account compliance. But more on the hiring incentive:
HIRE Tax benefit::Employers will not have to pay their share of Social Security payroll taxes on qualified new employees starting March 18, 2010 through December 31, 2010. Social Security is 6.2% of wages up to the FICA wage cap of $106,800. So the maximum benefit is $6,621 for each qualified new employee. An additional $1,000 per employee will be allowed as a credit if the employer retains the employee for at least 52 consecutive weeks, as long as the wages paid the employee during the last 26 weeks are no less than 80% of his wages paid during the first 26 weeks. The employee must still pay his or her share of Social Security.
Eligible employee: The employee must start after February 3, 2010 and before January 1, 2011, and must not have been employed for more than 40 hours during the 60-day period ending on the date of employment. The employee cannot displace a current employee unless the former employee left voluntarily or for cause. Wages of domestic workers and individuals eligible for the foreign income exclusion are excluded. Certain “related” employees are also excluded.
Paperwork: : The employee must certify that he or she is an eligible employee. The IRS just released a model affidavit, Form W-11 for this purpose, although any affidavit would likely be acceptable. The exemption is claimed by reducing payroll tax deposits and then reporting the adjustments on Form 941, which is being revised for the second quarter, due in August. Since March 19 – March 31 fell in the first quarter and the Form 941 was not revised in time, the exemption for that period will be claimed on Form 941 for the second quarter.
WOTC Impact: Wages eligible for the payroll tax exemption may not be taken into account for purposes of the Work Opportunity Tax Credit, so employers applying for WOTC may elect out of the tax exemption.
