HIRE Act of 2010 contains tax incentives for businesses

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act of 2010 into law. The $17 billion jobs package includes tax incentives for employers and an extension of the $250,000 threshold for small business expensing. The Act is partially funded by revenue-raising provisions, including a new anti-off shore tax abuse measure.

Below is a list of key provisions that might apply to your business.

Payroll tax “holiday” for hiring unemployed workers

For wages paid after the enactment date until December 31, 2010, the bill includes an exemption from Social Security payroll taxes for qualifi ed employers that hire workers who have been unemployed for at least 60 days. The exemption applies to the employer’s OASDI tax only, not to the employer’s 1.45 percent Medicare (HI) portion nor the employee’s OASDI or HI portions.

A qualified employer is any employer other than the United States, a state, or a political subdivision. However, institutions of higher education are considered qualified employers.

A qualified unemployed worker is an individual who:

• is employed by a qualified employer after February 3, 2010, and before January 1, 2011;

• signs an affidavit stating he or she has not been employed for more than 40 hours during the 60-day period preceding the date of hire;

• is not hired to replace another employee unless the separated employee left voluntarily or was dismissed for cause; and

• is not related to the qualified employer or anyone who owns more than a 50 percent share of the company.

This provision provides a maximum value of 6.2 percent of wages up to the FICA wage base, which for 2010 is $6,621.60 ($106,800 wage base x 6.2%). In addition, employers may not qualify for both the payroll tax holiday and the Work Opportunity Tax Credit (WOTC) for the same employee. The WOTC might be more valuable than the payroll tax exemption, so you should consult with your WK tax advisor regarding the best election.

New $1,000 credit for each retained worker

For any tax year ending after the enactment date, the new law includes a $1,000 business credit for unemployed individuals hired by an employer on any date during the tax year, provided:

• the employees meet all criteria for the payroll tax exemption;

• employees work for a period of not less than 52 consecutive weeks; and

• wages for such employment during the last 26 weeks of the period equaled at least 80 percent of wages for the first 26 weeks of the period.

Because this credit applies in the tax year the 52-consecutive-week criteria is first satisfied, the credit can only be claimed in one tax year. For employers using a calendar year-end, the credit will be claimed on the 2011 tax return, filed in 2012.

Extension of enhanced small business expensing

The HIRE Act extends to 2010 (an effective date of January 1, 2010) the higher expensing limits that were in place for 2008 and 2009, so that taxpayers can write off up to $250,000 of certain capital expenditures that qualify under Code Section 179. A phase-out begins to take effect when property placed in service exceeds $800,000 for 2010.

CONTACT US

For questions regarding the HIRE Act or other tax legislation, please contact your WK advisor at (573) 442-6171 or (573) 635-6196.

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