New Employee Hiring Incentives & HIRE Act Credit

The “Hiring Incentives to Restore Employment Act of 2010,” more commonly referred to as the “HIRE” Act, was passed by Congress and signed into law by the President in the first quarter of 2010.  The Act provides employers with incentives to hire unemployed individuals.  The provisions of this new legislation apply to workers hired after Feb. 3, 2010, but only for wages paid after March 18 (the date the legislation was signed into law).    

• Payroll Tax Holiday - The 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's wages paid from March 19 through December 31, 2010.  Thus, if the newly-hired and previously-unemployed worker earns $106,800 after March 18, 2010 and before the end of the year, the company could save a maximum of $6,621.  This provides the employer with an immediate benefit by reducing the amount the employer must pay in employment taxes.
  
  
• Retention Credit - As an additional incentive, for any qualifying employee 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 equal to the lesser of $1,000 or 6.2% of the wages.  Since the 52-week requirement cannot be met until the subsequent year, the credit will be taken on the employer’s 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.  This credit is not available for domestic workers.

New Employee Qualifications - Although there is no minimum number of hours that a new employee needs to work in order to qualify for either benefit, an employer cannot claim the new tax breaks for hiring family members.  A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.  The payroll tax holiday can be claimed for rehiring old workers as long as that worker was terminated due to facts and circumstances, such as a factory closure due to lack of demand for the product.

Employee Documentation – To validate the new hire for the benefits, an employer must have the employee 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 IRS provides Form W-11, “Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit,” for this purpose. Employers do not send the completed and signed form to the IRS, but are required to retain it with their other payroll and income tax records.

Interaction with the Work Opportunity Credit (WOTC) – An employer must choose, on an employee-by-employee basis, whether to claim the HIRE benefits or the WOTC; double dipping is not allowed.  The WOTC is in many cases more valuable than the payroll tax holiday, especially for low-wage employees, because it is generally 40% of “qualified first-year wages” of up to $6,000, for a maximum credit of $2,400 per worker.

The payroll tax holiday is equal to 6.2% of wages, and applies only to wages paid through Dec. 31, 2010.  However, the WOTC is harder to qualify for, because the employee must be certified by an agency as belonging to a targeted group.  The main qualification for a payroll tax holiday is that the employee has been unemployed for 60 days, and the employee's affidavit is sufficient for this purpose.

For more information on this topic and other business-related issues, please give this office a call.

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