On March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act became law. The centerpiece of the HIRE Act is $13 billion in tax breaks for organizations to boost hiring of unemployed workers in 2010. The “Hire Now Tax Cut” combines payroll forgiveness for Social Security taxes paid on qualified new hires, along with a tax credit for them remaining on the payroll for at least 52 weeks.
Social Security Tax Exemption
The 6.2-percent employer Social Security tax exemption applies to previously unemployed individuals hired after February 3, 2010 who have worked less than 40 hours during the 60-day period prior to employment and whose 2010 earned wages after March 18, 2010 and before January 1, 2011 do not exceed $106,800.
- Employers can save the 6.2-percent employer Social Security tax, whether they hire a $40,000 worker or a $90,000 worker. Employers, including nonprofit organizations, and colleges and universities, would not have to wait until 2011 to benefit from this tax relief because savings would accrue with each payroll processed.
- The legislation also encourages businesses to hire workers earlier in the year because the tax benefit will be greater. For example, a $60,000 worker hired on April 1st saves an employer about $2,800 in taxes. Delaying the hiring until June 1st would reduce savings to about $2,200.
- This exemption has no cap or limit as to the total amount of tax benefits that can be claimed by an employer. Employers can save up to $6,622 per qualifying worker, whether they hire one worker or hundreds of new workers.
- Businesses, agricultural employers, tax-exempt organizations, and public colleges and universities all qualify to claim the payroll tax benefit for eligible, newly hired employees. Household employers cannot claim this new tax benefit.
- Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on IRS.gov by the end of April 2010.
Tax Credit
Employers will receive an income tax credit, which is either $1,000 for each qualifying worker hired after February 3, 2010 and employed for at least 52 consecutive weeks, or 6.2 percent of wages paid to the qualifying worker over the 52-week period, whichever is less. Wages during the last 26 weeks must be at least 80 percent of wages paid for the first 26 weeks.
- Any new hire must certify “by signed affidavit,” under penalties of perjury, that he/she has “not been employed for more than 40 hours during the 60-day period ending on the date such individual begins such employment.” The IRS is currently developing a form employees can use to make the required statement.
- Neither the 6.2-percent employer Social Security tax exemption nor the retention tax credit is permitted if a person is hired to replace another employee “unless such other employee is separated from employment voluntarily or for cause.”
For more information about the HIRE Act, contact the Member Answer Center at 877-819-8284 or visit irs.gov for continually updated information or forms. iBi
