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New hiring incentives for your business

Management | June 1, 2010 | By:

Will you and your tent rental company be among those that reap the savings under the 2010 Hiring Incentives to Restore Employment (HIRE) Act? The HIRE Act recently signed into law includes $17.6 billion in tax breaks for businesses. The “Hire Now Tax Cut” combines payroll forgiveness for Social Security taxes paid on qualified new hires, along with a tax credit for keeping the new hire on the payroll for at least 52 consecutive weeks.

The new law also extends a tax break for small businesses buying new equipment and expands an initiative to help state and local governments finance infrastructure programs. But the heart of the HIRE Act is a tax incentive to hire new workers from the ranks of the unemployed.

The HIRE Act contains an exemption from Social Security payroll taxes for every worker hired after Feb. 3, 2010, and before Jan. 1, 2011, who has been unemployed for at least 60 days. However, only wages paid after the March 19 enactment date qualify for the payroll tax exemption.

While there is no minimum weekly number of hours that the new employee must work to be eligible and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven, in reality, the maximum value of the credit would be equal to 6.2 percent of wages up to $106,800, which is the Federal Insurance Contributions Act (FICA) wage cap, generating a maximum value of the incentive of $6,621 for any “qualified employee.”

The payroll tax holiday applies only to the 6.2 percent Social Security portion of the employer’s tax. It doesn’t apply to the 1.45 percent Medicare portion of the employer’s payroll tax burden, nor to any part of the employee’s tax.

Since the benefits to the employer are tied only to 6.2 percent of any salary paid, a qualified worker may be hired for any number of hours, full- or part-time. No minimum or maximum number of hours is required, although some coordination with employees with multiple jobs is required since prior unemployment must be shown.

The HIRE Act also creates an additional $1,000 income tax credit for every new employee retained for 52 weeks, to be taken on the employer’s 2011 income tax return. The “6.2 percent of wages paid by the taxpayer” language was added to the HIRE Act to prevent any employee from qualifying for the full $1,000 credit for only minimal part-time work. Based on the 6.2 percent cap, any newly hired employee who earns more than $16,129 during the 52-consecutive-week period would entitle his or her employer for the full $1,000 retained worker credit.

The retained worker credit will generally be taken on the employer’s 2011 income tax return because of the 52-consecutive-week requirement. If the new hire voluntarily leaves after 50 consecutive weeks for a better job, the employer is not entitled to any portion of the credit for that employee.

Mark E. Battersby is a tax and financial writer based in Ardmore, Pa.

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