With the signing of the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010, President Obama introduced a broad range of employee hiring and retention tax incentives for employers in the United States.
Designed to help put unemployed Americans back to work, the new bill could greatly affect hiring decisions for many companies throughout the rest of the year. So, what do employers need to know to take advantage of the benefits provided by the HIRE Act?
The HIRE Act includes $13 billion in tax breaks for private sector businesses and creates an incentive for companies to hire workers who have been unemployed for more than 60 days. The incentives include payroll tax forgiveness on qualified hires as well as incentives to retain those workers for at least 52 weeks. Qualified hires are eligible for incentives from the date of hire through December 31, 2010. However, the incentives will begin to diminish as the year goes on, so the sooner an employer hires a qualified worker, the greater the potential tax forgiveness.
What are the hiring incentives?
Under the new bill, if an employer hires a worker who has been unemployed for more than 60 days, the employer’s share of the 6.2% social security tax is forgiven for that employee from the date of hire through December 31, 2010. The employer is still required to withhold the employee’s share of social security tax, so the employee’s future benefits are not affected. The maximum potential savings are $6,621 per hire, based on the $106,800 FICA wage cap.
Who are qualified workers?
A qualified worker must have begun employment after February 3, 2010. They must also have been unemployed for at least 60 days prior to the date of hire and be able to provide a statement certifying they meet these eligibility requirements. A qualified hire cannot replace a current employee unless that employee left the company of their own accord. And, since the amount of tax forgiveness is based only on 6.2 percent of wages paid, there are no minimum or maximum hours worked requirements. Also, a qualified worker cannot be related to the employer or own more than 50 percent of the business.
What are the retention incentives?
Employers who retain qualified workers for at least 52 weeks are eligible to receive a tax credit for each of those workers in the amount of $1000 or 6.2 percent of wages paid to the qualified worker during the 52 consecutive weeks of employment, whichever is less. And, to be eligible for tax incentives, a qualified worker must also be paid 80% of their first 26 weeks’ wages during the last 26 weeks of the 52 consecutive week period.
Only time will tell if the 2010 HIRE Act will help jumpstart employment in the United States. But in the meantime, employers are presented with a great opportunity to begin rebuilding their workforce in the wake of the recession without some of the financial burdens that go along with hiring new employees. And, unemployed workers may have an easier time finding a new job.