Just today, the Senate passed the Hiring Incentives to Restore Employment (HIRE) Act. President Obama is expected to sign this new legislation very soon. Designed to help get people back to work, the HIRE Act provides attractive tax incentives for employers who hire unemployed workers.
The Hire Now Tax Cut exempts employers from paying their 6.2-percent share of the Social Security payroll tax for qualified employees hired between February 3, 2010 and January 1, 2011. Qualified employees are individuals who have not worked more than 40 hours during the 60 days prior to being hired. The newly hired employee must also sign an affidavit certifying their status. However, to be eligible for the Social Security exemption, the new employee cannot replace a currently employed individual unless that person quits voluntarily or is terminated for cause.
The tax incentive applies to all for-profit and nonprofit employers except the US government, any state, or political subdivision or instrumentality of the foregoing. This payroll tax incentive provides an immediate savings to companies that hire employees. Of course, lower payroll taxes will result in smaller deductions on the employer’s 2010 tax returns.
In addition to the payroll tax incentive, employers are eligible to receive a retention credit if the new employee is still employed after a year. This US$1,000 tax credit is available for each qualified employee hired.
In practice, here is how it will work:
On April 1, 2010 X Company hires Ms. Smith, who was unemployed for the last 60 days, and pays her US$60,000 for the remainder of the year. X Company will save US$3,720 in payroll tax for Ms. Smith in 2010. After Ms. Smith’s one year anniversary, X Company will also receive a US$1,000 tax credit.
The HIRE Act also extends the enhanced tax deductions for small and midsized businesses to take on capital purchases up to US$250,000, often referred to as a Section 179 deduction. This deduction currently declines in 2010. However, the Act would extend the 2009 provisions and allow for up to US$250,000 in capital expenditures to be treated as a deduction in 2010.
For more information on the HIRE Act, please contact your principal Squire Sanders lawyer or one of the individuals listed in this Alert.