Tax Incentives Included in Hiring Incentives to Restore Employment Act of 2010

In reaction to the high unemployment rate and slow economic recovery, Congress has passed and President Obama is expected to sign the Hiring Incentives to Restore Employment (HIRE) Act of 2010. The Act is intended to promote job growth through payroll tax exemptions as well as tax credits for employers hiring qualifying employees in 2010. This article will examine the hiring incentive in more detail as well as other provisions included in the Act.Payroll Tax Forgiveness The HIRE Act provides an exemption to a qualifying employer for the 6.2 percent Social Security tax on the first $106,800 of wages paid to a qualifying employee. The maximum exemption amount per qualifying employee is $6,621.60. The employer is still liable for the 1.45 percent Medicare tax portion of wages paid, and the qualifying employee must still pay his or her share of both the Social Security and Medicare taxes. A qualifying employer is any employer other than the United States and state governments or any political subdivision, with the exception of state colleges and universities.

For the employer to qualify for the Social Security tax exemption, the new employee must meet the following criteria:

• Hired after February 3, 2010, and before January 1, 2011

• Employee certifies by signed affidavit that he or she has not been employed for more than 40 hours during the 60-day period prior to employment

• Does not replace another employee unless the other employee separated from employment voluntarily or for cause

• Employee is not related to the employer or to any individual who owns more than 50 percent of the employer

To account for many employers having already paid the IRS first quarter payroll taxes on qualifying employees, the Act does not apply for wages paid during the first quarter of 2010. Instead, employers will receive a credit on their second quarter payroll tax return. The credit will be equal to the exemption they should have received for first quarter Social Security taxes paid on wages to qualifying employees.If an employee qualifies for both the payroll tax exemption and the Work Opportunity Tax Credit (WOTC), the Act does not allow the employer to treat the wages paid as qualifying for the WOTC unless the employer elects to forgo the payroll tax forgiveness on those wages. An employer cannot receive both benefits for the same employee.Retained Workers Tax Credit

Employers may also receive an income tax credit of up to $1,000 per qualified, retained worker if all of the following conditions are met:

• Retained worker is a qualifying employee for purposes of the payroll tax exemption

• Retained worker was employed by employer for at least 52 consecutive weeks

• Retained worker is paid wages during the second half of the 52-week period equal to at least 80 percent of wages paid during the first 26 weeks

Because of the 52-week minimum employment requirement, the tax credit will not be available until the 2011 tax return for calendar year taxpayers. Any unused retained workers credits on the 2011 return cannot be carried back to an earlier tax year.