The Hiring Incentives to Restore Employment (“HIRE”) Act, signed into law March 18, 2010, includes several important tax provisions designed to promote job growth and stimulate the United States economy.
Hire Now Tax Cut
$13 billion in tax breaks are available to qualified employers both in the form of payroll forgiveness for Social Security taxes paid for qualified new hires, as well as a tax credit to employers for keeping those employees on payroll for 52 consecutive weeks.
Social Security Tax Forgiveness
Qualified Employer. A qualified employer is any non-governmental entity hiring in the United States. Federal, state or local governments or instrumentalities, except for state colleges and universities, do not qualify. Any employer may choose to opt out of the forgiveness program.
Qualified Employee. A qualified employee is any previously unemployed individual hired between February 3, 2010 and January 1, 2011. The individual must be able to show no more than 40 hours employment in the 60 days prior to hiring. The new hire cannot replace an employee unless the replaced employee’s departure was either voluntarily or for cause. Relatives of the employer, or shareholders owning more than 50 percent of the business, are not eligible employees.
Retained Worker Tax Credit
Employers will be eligible for an additional tax credit for each qualified retained worker kept on the payroll for 52 consecutive weeks. That credit will come as an increase to the Code Sec. 38(b) credit by the lesser of $1,000 or 6.2 percent of wages paid during the 52-week period.
Qualified Retained Worker. A new worker kept on the payroll for 52 consecutive weeks might qualify as a retained worker. To ensure just pay, that worker needs to earn an amount equal to at least 80 percent of his or her first 26-week accumulated wage in his or her second 26 weeks.
Employers may claim the retained worker credit only if the full 52-week period is met. Should a worker spend 51 consecutive weeks in employment and then leave, the employer would not be eligible for any portion of the tax credit.