On March 18, 2010, the President signed the Hiring Incentives to Restore Employment (HIRE) Act. This new jobs bill is intended to encourage employers to hire the unemployed. The HIRE Act creates two new incentives for hiring and retaining unemployed workers:
- The employer gets a holiday from paying the business’s share of the OASDI (Social Security 6.2%) tax on the new employee for the rest of 2010, and
- The employer gets up to a $1,000 tax credit for keeping the new hire on the payroll for at least one year (52 weeks).
Some additional details about the incentives in the new hiring act include:
- The 6.2% payroll tax holiday is immediate and increases your business cash flow. While the business is not required to pay its ½ of the OASDI on the new hire’s wages, it must still pay the Medicare tax on the wages paid to the new employees and all FICA taxes for old employees.
- To qualify, the employee must have NOT worked for anyone for more than 40 hours in the prior 60 days ending with the day the employee starts work for you, and he must have been hired by you after February 3, 2010. The employee must sign an affidavit form (New Form W-11) confirming his unemployment status.
- The business can’t simply replace another employee and qualify for the credit unless the replaced employee separated from employment voluntarily or for cause. An exception may apply if the business had a lay off due to lack of work, and then later rehired due to an increase in work. You do not need to rehire the laid off individuals, but be careful, there must have been a valid work load reduction.
- To encourage businesses to retain the new hires for at least 52 consecutive weeks, the HIRE Act also provides a credit up to the lesser of $1,000 or 6.2% of the first $16,129.03 of wages paid for each qualified employee. This credit will be claimed on the 2011 return.
- There is no minimum weekly number of hours of work required of the new employee.
- The maximum payroll tax credit that may be forgiven per employee is $6,622. The business saves 6.2% on both a $40,000 worker and a $90,000 worker. There is no maximum dollar amount of forgiveness per business; if you hire 5 qualified employees, your credit could be over $33,000!
- If a worker is eligible for both the HIRE credit and the “Work Opportunity Tax Credit,” the business can choose one benefit or the other for 2010—no double dipping.
- There are no HIRE tax breaks if the business hires family members (except spouses).
- The business can’t simply replace another employee and qualify for the credit unless the replaced employee separated from employment voluntarily or for cause.