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Take advantage of tax breaks offered in new HIRE Act

03/23/2010

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With the unemployment rate still holding stubbornly near 10%, Congress this month approved a new $18 billion bill that offers tax breaks to employers who add certain new employees to the payroll. President Obama signed it on March 18. The so-called Hiring Incentives to Restore Employment (HIRE) Act comes in two parts:

Immediate payroll tax relief for wages paid to certain new hires. The new law would eliminate the 6.2% Social Security payroll tax you’d pay on wages paid to “qualifying new hires” who:

  • Are hired after Feb. 3, 2010, and before Jan. 1, 2011.
  • Has not been employed for more than 40 hours during the 60-day period ending on the date employment begins.
  • Are not being hired to replace anybody, unless the other employee quit or was fired for cause.
  • Are not related to any company owners.

Employers can claim the payroll tax relief starting April 1, 2010, with a special catch-up for post-enactment first-quarter wages paid to qualifying employees. The IRS has published new tax forms (Form W-11 and a new Form 941) for claiming the employer payroll tax relief---see below.)

Business Tax Credit for retained new hires. In addition, the HIRE Act says employers can earn a tax credit equal to 6.2% of the new hire’s salary—up to $1,000—for each new hire that remains on the payroll for 52 consecutive weeks. Employers can take this new credit on their 2011 tax return.

To qualify for this retention tax credit, employers must pay at least 80% of the wages during the second half of the 52-week period that were paid during the first half (26 weeks) of that period.

With both new tax breaks, employers can be eligible for $6,622 per qualifying new hire. There’s no cap on the total amount of tax benefits claimed by employers under the HIRE Act. 

The law says only “qualified employers” can take the tax breaks. That includes private-sector companies (both for-profit and nonprofit) and public higher education institutions.

Final note: Employers can’t  claim a Work Opportunity Credit (WOTC) for any employee for whom you’re eligible to claim a HIRE Act business tax credit, unless you make an election not to apply the HIRE Act.

RESOURCES:

New IRS Form W-11: Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit

Draft of revised 941 Form (IRS)

HIRE Act: Questions and Answers for Employers (IRS)

The HIRE Act: A Checklist of Maximizing Your Tax Benefits

The first step is to designate someone to coordinate a review of the HIRE Act and assemble a team—including HR, benefits, payroll and corporate tax—to consider its obligations and benefits, says a report by the Littler Mendelson law firm.

If your organization is evaluating whether to use the HIRE Act tax breaks, consider the following steps:

  1. Determine if the employer is "qualified."
  2. Identify potential positions that are ready to fill.
  3. Evaluate the overall cost of employment vs. the tax benefits provided by the Act.
  4. Consider prioritizing hiring objectives to identify positions ready to be filled, the availability of qualified candidates, the speed with which the recruiting and hiring process can be completed and the employer's long-term business needs;
  5. Observe all existing state and federal antidiscrimination laws when making any hiring decisions.

When filling any position, employers should:

  1. Consider whether the tax benefits of HIRE outweigh the benefits of WOTC;
  2. If a new hire is WOTC qualified, consider formally electing out of HIRE for the employee;
  3. Alert the payroll department (and any payroll service provider) when a qualified employee is hired;
  4. Create and retain HIRE-specific records that document each qualified employee's date of employment and the 52-week mark for use in establishing Business Credit eligibility;
  5. Alert the payroll department regarding any qualified employees hired after Feb. 3, 2010, and before April 1, 2010, so appropriate Social Security credit can be taken in the second quarter for first quarter employer-paid Social Security taxes;
  6. Advise the corporate tax department (or other corporate tax preparers) when a qualified employee meets the 52-week service requirement, so the appropriate credit can be calculated and taken;
  7. Remember that hiring and retention decisions should be secondary to employment law compliance considerations.

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