HIRE ACT. President Signs Jobs Bill Giving Payroll Tax Break To Employers
The Senate voted 68-29 to approve the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847). The legislation was signed into law by the President on Thursday, March 18, 2010. The HIRE Act primarily provides temporary incentives for businesses to hire new employees and invest in property and equipment.
There are two key payroll tax credits that you should be aware of:
FICA Exemption
Employers will be exempt from paying the Employer share of Social Security taxes on wages paid to qualified unemployed workers after the date of enactment (3/18/2010) and before January 1, 2011. This exemption does not apply to Medicare taxes, nor does it exempt the employee from having to pay Social Security taxes on those same wages.
This exemption has no cap or limit as to the total amount of tax benefits that can be claimed by an employer. The Social Security wage tax of 6.2% on the max of $106,800.00 would save the Employer $6,621.60 in 2010.
Eligible new hires are defined as follows:
- Begins employment with the employer after February 3, 2010 and before January 1, 2011,
- Certifies by signed affidavit, under penalties of perjury, that he has not been employed for more than 40 hours during the 60-day period ending on the date he begins employment with the employer,
- Is not employed by the employer to replace another employee of the employer unless the other employee separated from employment voluntarily or for cause, and
- Is not related to a greater-than-fifty percent owner of the employer.
(The legislation does not address how the employer would establish that the new hire was not to replace another employee or that the termination of the other employee was voluntary or for cause.)
Retention Tax Credit
To provide incentive to retain these newly hired employees, employers will receive a general business credit of $1,000 for each qualifying employee that satisfies a minimum employment period. A qualifying employee is based on the same definition used for the FICA exemption discussed above. In addition, the employee must:
- Be employed by the employer on any date during the taxable year,
- Be employed continuously by the employer for at least 52 weeks from the hire date, and
- Receive compensation during the last 26 weeks of the period that is at least 80 percent of the compensation paid during the first 26 weeks of the period.
Essentially, a calendar year employer will receive the tax credit in 2011 if the qualifying employee is retained for at least one year from date of hire and if the compensation is fairly stable during the first year. The 80 percent rule was put in place presumably to prevent employers from front loading wages into 2010 when they would be eligible for the payroll tax holiday.
CheckWriters Will Help With The FICA Exemption
We are making adjustments within our software to facilitate your reporting of the newly hired employees that will qualify for the exemption. If you have a qualifying Employee, please call your Customer Service Representative at CheckWriters. We will set up the proper tax code for you to add to each qualifying employee's tax tab.
The applicable tax will be an actual reduction to your payroll tax liability amount. Payroll Tax Transfers, Liabilities and Deposits will reflect the reduction.
Please be aware that you, as the Employer, must certify by affidavit that the employee meets the qualifications under the HIRE ACT.
For the IRS information page please click below.
