Update - May 4, 2010: The Federal HIRE Act created new tax benefits designed to encourage employers to hire and retain new workers. As a result, employers who hire unemployed workers this year (after February 3, 2010, and before January 1, 2011) may qualify for a 6.2-percent 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.

This reduction will not have an effect on the employee’s future Social Security benefits and employers still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. In addition, for each unemployed worker retained for at least a year, businesses may claim a new hire retention credit of up to $1,000 per worker when they file their 2011 income tax returns. 

Click here to download the Form W-11 Hiring Incentives to Restore Employment Act Employee Affidavit.

March 22, 2010: The Hiring Incentives to Restore Employment (HIRE) act, signed into law March 18, provides tax incentives for hiring and retaining workers and purchasing equipment and many other business assets.

Payroll Tax Forgiveness
This essentially exempts qualified employers (generally employers other than government entities) from having to pay the 6.2% Social Security portion of Federal Insurance Contribution Act (FICA) taxes on certain new hires through the end of the year. To qualify, a worker must be hired after February 3, 2010, and before January 1, 2011, and must have been unemployed (defined as not having worked more than 40 hours) for the 60-day period ending on his or her start date.

Retention Credit
This credit applies to workers who qualify for payroll tax forgiveness if they are retained for 52 consecutive weeks. The tax savings per qualified retained worker are equal to the lesser of 6.2% of the wages paid to the worker in 2010 or $1,000.
 
Sec. 179 Expensing
The HIRE act extends the increase in the Section 179 limit for initial year expensing to $250,000 (from $134,000). The Sec. 179 expensing election allows a current deduction for newly acquired assets that otherwise would have to be depreciated over a number of years. The HIRE act also extends the increase in the threshold at which the expensing election begins to phase out to $800,000 (up from $530,000). The higher limits apply for calendar year 2010 or a business’s fiscal year that begins in 2010. A business can claim the expensing election only to offset its net income, not to reduce net income below zero.

Other Provisions
The HIRE act includes additional provisions that may be of interest to you, such as:

• A new election to convert tax credit bonds to Build America Bonds,
• Extension of highway and transit programs through 2010,
• Strengthening of foreign account tax compliance, and
• Deferral of implementation of “worldwide allocation of interest” to 2020.

Various changes to estimated tax payment requirements for certain large corporations also were included in the act, but they will not go into effect until 2014 or later.

Many Rules Apply
These breaks might provide your business with valuable tax savings, but many rules apply to them.

Click here to download the Form W-11 Hiring Incentives to Restore Employment Act Employee Affidavit.

For more information, please contact your BC Engagement Executive or David L. Groves, CPA, Tax Partner at 330.497.2000.