Hiring Incentive to Restore
Employment (HIRE) Act
On March 18, 2010, the President signed into law the Hiring Incentive
to Restore Employment (HIRE) Act. The Act encourages companies
to hire (and retain) unemployed workers by creating various incentives.
Below is an overview of the key tax changes affecting business
in the recently enacted Act.
Extension of enhanced small business expensing (Section
179).
The new law gives a one-year extension to the enhanced expensing
rules, which allow qualifying businesses the option to currently
deduct the cost of business machinery and equipment. For tax years
beginning in 2010, the maximum amount that a business may expense
is $250,000, and the expensing election begins to phase out when
a business buys more than $800,000 of eligible assets. These dollar
limits are the same as those that were in effect for 2008 and
2009.
Payroll tax holiday and up-to-$1,000
credit for employers who hire unemployed workers.
To help stimulate the hiring of workers, the new law exempts any
private-sector employer that hires a worker who had been unemployed
for at least 60 days from having to pay the employer's 6.2% share
of the Social Security payroll tax on that employee for the remainder
of 2010.
As an additional incentive, for any qualifying worker hired under
this initiative that the employer keeps on payroll for a continuous
52 weeks, the employer is eligible for an additional non-refundable
tax credit of up to $1,000 after the 52-week threshold
is reached, to be taken on their 2011 tax return. 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.
Note:
The credit is the lesser of $1,000 or 6.2% of the wages
paid by the taxpayer to the retained worker during the 52-consecutive-week
period. Thus, the credit for a retained worker will be $1,000
if the retained worker's wages during the 52-consecutive-week
period exceeds $16,129.03. |
Workers hired after the date of introduction
of the legislation (Feb. 3, 2010) are eligible for the payroll
tax forgiveness and the retention bonus, but only wages paid after
the date of the new law's enactment receive the exemption for
payroll taxes.
Here are some additional features of the new hiring incentive:
-
The tax benefit of
the new incentive is immediate. The business has cash flow immediately,
since the tax is never collected in the first place.
-
The tax benefit generally
applies only to private-sector employment, with a few exceptions.
-
There is no minimum
weekly number of hours that the new employee must work for the
employer to be eligible.
-
There is no maximum
on the dollar amount of payroll taxes per employer that may
be forgiven.
-
For workers that would
otherwise be eligible for the "Work Opportunity Tax Credit,"
the employer must select to take advantage of this new benefit
or the original Work Opportunity Tax Credit.
-
An employer can't
claim the new tax breaks for hiring family members.
-
A worker who replaces
another employee who performed the same job for the employer
is not eligible for the benefit, unless the prior employee left
the job voluntarily or for cause.
-
For the hiring to
qualify, the new hire must sign an affidavit, under penalties
of perjury, stating that he or she has not been employed for
more than 40 hours during the 60-day period ending on the date
the employment begins.
-
The incentive is not
biased towards either low-wage or high-wage workers. Under the
measure, a business saves 6.2% on any wage (up to the $106,800
maximum subject to social security taxes).
-
The payroll tax holiday
does not apply with respect to wages paid during the first calendar
quarter of 2010, but the amount by which the Social Security
payroll tax would have been reduced under the payroll tax holiday
provision during the fist calendar quarter is applied against
the tax imposed on the employer for the second calendar quarter
of 2010.
- The Act creates a similar new set
of rules permitting a payroll tax holiday for railroad retirement
tax purposes.
Direct payment option for certain
tax credit bonds.
State and local governments have the ability to issue special purpose
tax credit bonds for school construction, energy conservation and
renewable energy. The federal government subsidizes these tax credit
bonds by providing investors in these bonds with a federal tax credit
in place of interest that would otherwise be payable on the bond.
In lieu of providing investors with federal tax credits, the new
law allows issuers of qualified school construction bonds, qualified
zone academy bonds, clean renewable energy bonds, and qualified
energy conservation bonds to elect to receive a direct payment from
the federal government equal to the amount of the federal tax credit
that would otherwise be provided for these bonds.
Revenue offsets.
To pay for the tax incentives, the Act includes revenue offsets
consisting of:
-
a comprehensive set
of measures to reduce offshore noncompliance by giving IRS new
administrative tools to detect, deter and discourage offshore
tax abuses; and
-
a three-year delay
(through 2020) of implementation of worldwide allocation of
interest-a liberalized rule for allocating interest expense
between U.S. sources and foreign sources for purposes of determining
a taxpayer's foreign tax credit limitation.
For further information and clarification on these matters,
please contact Cheryl A. Prout, CPA and Partner at (716) 250-6600.
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