Don’t Ignore the HIRE Act: Tangible Tax Benefits Await Employers
June 15th, 2010 by Julie ViolaThrough many of my conversations with CFOs, controllers and owners of mid-market and smaller companies, I’ve noticed a running theme that more emphasis should be placed on the tremendous opportunities afforded by the Hiring Incentives to Restore Employment (HIRE) Act (see this March 2010 MFA Perspectives for more detail on the HIRE Act). While most are vaguely aware that the Act was signed into law back in March of this year, there is less understanding of the tangible tax benefits this Act offers for private sector employers – for profit and nonprofit organizations – as well as state colleges and universities.
As companies once again look to expand their workforce, the HIRE Act tax incentives provide a boost of urgency for businesses to hire new workers. The payroll tax exemption puts money into a company’s cash flow immediately, since the tax is simply not collected in the first place. Also worth mentioning is that the threshold to qualify for the full new hire retention tax credit is relatively low – $16,129 in wages will be required to earn the full $1,000 credit ($16,129 x 6.2 percent = $1,000).
Below is an outline of the new hiring and retention incentives, including important qualification criteria and details on how to claim the tax benefits. Execution, or a company’s ability to quickly recruit and hire, will be key to taking maximum advantage of these incentives. Hiring qualifying workers sooner rather than later will draw the most out of the Act, as the tax credits diminish over time and disappear completely by January 1, 2011.
Details of the New Tax Benefits
Payroll Tax Exemption
Gives a qualified employer an exemption from paying the employer share of Social Security employment taxes (6.2 percent of the first $106,800 of wages) for wages paid in 2010.
- employee must be hired after February 3, 2010 but before January 1, 2011
- employee must have been unemployed during the 60-day before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period
- new hires filing existing positions qualify only if the workers they are replacing left voluntarily or for cause
- there is no minimum age requirement to be a qualified employee
- recent graduates may qualify
- new start-ups hiring their initial workforce are eligible
- [EDIT: HIRE YOUR FAMILY MEMBERS AND RELATIVES! Family members or other relatives generally do not qualify, however, they do qualify if the taxpayer is a partnership or corporation and they are related to a shareholder who owns directly or indirectly 50% or less of the value of the outstanding stock or 50% or less of the capital and profits interests]
- household employers cannot claim this tax benefit
- federal, state and local government employers, other than public colleges and universities, are not eligible
- for workers that would otherwise be eligible for the “Work Opportunity Tax Credit” (WOTC), the employer must select either the payroll tax exemption or the WOTC benefit for 2010—not bothNew Hire Retention Tax Credit
Continued retention of qualified employees gives a qualified employer a one-time business credit of 6.2 percent of wages paid to each qualified employee over a 52-week period, up to a maximum of $1,000 per qualified employee.
- in order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period
- this new credit may not be carried back but may be carried forward
- an employer may claim the new hire retention credit for a qualified employee even if the employer has also claimed the WOTC for the same employee
Claiming the New Tax Benefits
The new hire retention credit will be claimed on the employer’s 2011 income tax return while the payroll tax exemption will require filing of the Q2 2010 version of Form 941 (Quarterly Federal Tax Return) and retaining for their records Form W-11 (Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit), which collects signed statements from each eligible new hire to certify they were unemployed during the 60 days before beginning work or, alternatively, worked no more than 40 hours during the 60 days before beginning employment with that employer.
June 17th, 2010 at 8:26 am
Is the 60 days of being unemployed by the new hire calendar or business days? If your anticipated hiring is for Part time employee (20 hrs per week), will they qualify?
Many thanks,
bruce
June 18th, 2010 at 1:40 pm
Hi Bruce - thanks for your questions, hopefully we can help with some additional detail.
To answer your first question, the 60-days are continous.
As for your second question, notably, there is no minimum number of hours per week the new employee must work. However, for an employer to claim the full $1,000 retention tax credit, it must pay the new hire at least $16,129 during the 52-week period (as the credit is capped at $1,000 but is computed based on 6.2% of wages). To qualify for the tax credit at all, the employee’s total wages during the second 26-week period must be at least 80% of the wages during the initial 26-week period.
June 29th, 2010 at 2:34 pm
On your HIRE act credit for family members of corporations, etc., I read the act to say you are eligible if you own “50% or less”, not “less than 50%”–this make a huge difference for 2 equal shareholders!
July 1st, 2010 at 11:01 am
Jacque: very good eye, it is indeed 50% or less and the post has been amended. Thank you!
July 26th, 2010 at 11:54 am
how do you if you qualify for the tax benefits?
How long can we continue the benefit?