HIRE Act: New Tax Incentives to Hire the Unemployed
May 2, 2010
by Richard L. Connors
Stinson Morrison Hecker LLP
Copyright © 2010
Two new tax benefits designed to encourage businesses to hire and retain unemployed workers are part of a $15 billion jobs bill – the Hiring Incentives to Restore Employment (HIRE) Act – that was passed by Congress and signed into law on March 18, 2010.
Payroll Tax Incentive – Under the HIRE Act, companies who hire certain unemployed workers this year may qualify for a 6.2% payroll tax incentive, in effect exempting them from the employer’s share of Social Security tax on wages paid to these workers after March 18, 2010. However, in order for the business to "qualify" for the tax incentive, the new hire:
1. Must begin employment after Feb. 3, 2010 and before January 1, 2011;
2. Must have been unemployed for 60 consecutive days before beginning work or, alternatively, must have worked fewer than a total of 40 hours for someone else during the 60-day period before beginning work;
3. Must sign an Employee Affidavit (IRS Form W-11, which is to be retained by the employer), certifying under penalties of perjury that the employee was unemployed (for the period described above);
4. Must not be related to the employer; and
5. Must not be employed to replace another employee – unless such other employee separated from employment voluntarily or for cause. However, an employer may apply the payroll tax exemption to wages paid to a rehired worker who is otherwise a qualified employee. An employer may also apply the payroll tax incentive to wages paid to a recent graduate who has been in school for some or all of the 60-days preceding the start of employment, provided the employee otherwise meets the requirements of a qualified employee.
Businesses may claim the special payroll tax exemption for wages paid to qualifying employees from March 19, 2010 through December 31, 2010. The exemption can be claimed on IRS Form 941, Employer’s Quarterly Federal Tax Return, beginning with the 2nd quarter of 2010.
New Hire Retention Credit – In addition, for each "qualified employee" retained for at least 52 consecutive weeks, businesses will also be eligible for a new hire retention credit, of 6.2% of wages paid to the qualified employee over the 52 week period, up to a maximum of $1,000. The wages for such employment during the last 26 weeks of such period must equal at least 80% of such wages for the first 26 weeks of such period. The new hire retention credit can be claimed on the employer’s 2011 income tax return.
More Information - The Internal Revenue Service (IRS)has posted answers to frequently asked questions about these tax incentives on the IRS website.
Richard L. Connors is an attorney with Stinson Morrison Hecker LLP, one of the country's largest law firms with more than 300 attorneys in more than 45-industry-focused areas. Mr. Connors represents management exclusively in employment and labor law.
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