Accountants CPA Hartford
William Brighenti, Certified Public Accountant
Certified QuickBooks ProAdvisor
Office Address:  46 Mildrum Road, Berlin, Connecticut 06037-2423      Phone:  (860) 828-3269      Email:  [email protected]
New Britain
HIRE Act Tax Credits
Obtain $1,000 + 6.2% of wages for new employees hired!

HIRE Tax CreditEnacted March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act offers two tax "credits" to employers hiring "qualified employees". For the period March 19, 2010 through December 31, 2010, the employer will be allowed an exemption from the employer's 6.2 percent share of social security tax on wages paid to all qualified employees.  It is important to note that the HIRE Act's  payroll exemption does not apply to the employer's 1.45 percent share of medicare tax.  In addition, if the employee is retained for at least 52 consecutive weeks, the employer is eligible for an additional tax credit of 6.2% of wages, up to a maximum credit of $1,000 for this separate tax credit.  Given the cap, only the first $16,129 of wages paid to newly hired employees will result in any additional tax benefit to the employer retaining the employee for 52 weeks.

Based on the FICA wage cap of $106,800, the maximum value of these two incentives is $7,621 for any “qualified employee.”  Of course, since payroll taxes are ordinarily deductible by an employer, the overall impact of the payroll exemption will be mitigated by the smaller payroll expense deduction reported on the employer's income tax return.  Consequently, assuming the highest marginal tax rate of 35%, the net tax benefit to the employer could be $5,304 for each qualified employee.

A "qualified employee" is either anyone who has not been employed or has worked fewer than 40 hours during the 60 days before being hired and who is hired by the employer between after February 3, 2010 and before January 1, 2011.  The Act includes part-time employees as well.  Employers are required to obtain a statement signed by the newly hired employee attesting to his or her unemployment during the 60 days before beginning work or, alternatively, to having worked fewer than a total of 40 hours for anyone during the 60-day period.  The Internal Revenue Service recently has published Form W-11, "Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit", which accomplishes the affidavit on the part of the employee under penalties of perjury.  All that is required of the employee is to provide his or her name, social security number, first date of employment, name of employer, employee's signature, and date signed.  If the employee perjures oneself upon signing this statement, the employer will not be held liable unless the Internal Revenue Service can prove otherwise. Consequently, it might be prudent upon employers to request employees to provide some proof of unemployment, if available, such as any receipts of unemployment checks or any notices of unemployment.
Form W-11

To be eligible for any of the tax benefits under the HIRE Act, the employee cannot replace another employee unless the other employee separated from employment voluntarily or for cause (including downsizing).  In other words, the employer cannot fire employees to hire qualifying employees in order to receive these two tax benefits; however, the employer can fire employees for cause and replace them with qualifying employees.  In fact, nothing in the Act appears to prevent an employer from laying off employees due to the slowing down of operations or the closing of departments, etc., and then rehiring these same previously laid off individuals after 60 days and take advantage of these two tax benefits.

In addition, the eligible employee cannot be related to the employer or to anyone owning more than 50% of the company's outstanding stock or capital and profits interest.

If the subject employee voluntarily quits after working 51 weeks on the job, the employer presumably will be barred from claiming the additional tax credit of 6.2% of wages paid or $1,000, whichever is less.  Similarly, if employers reduce the employees' wages by more than 20% in the second half of the 52-week year of employment, they, too, will be barred from claiming this $1,000 tax credit on their income tax returns.

Form 941 for the first quarter of 2010 has already been revised and made available to accommodate the exemption from the employer's 6.2 percent share of social security tax on wages paid to all qualified employees in the period March 19 through March 31.  For these thirteen days, simply include the number of qualified employees paid wages or tips on line 12c, include their total wages and tips on line 12d, and insert the product of these wages and tips times the 6.2% social security tax rate on line 12e.  Any first quarter credit for the 6.2 percent social security tax paid on newly hired employees can be carried over to the Form 941 filed for the second quarter of 2010.  In essence, this payroll exemption is a tax credit, relieving the employer of paying a portion of the payroll tax.

Revised Form 941 for 2010
Since the HIRE Act requires 52 weeks of consecutive employment before employers may claim the 6.2% tax credit on all wages paid to qualifying employees on their income tax returns, calendar year employers will be unable to claim the 6.2% tax credit on their income tax returns for 2010.  It is anticipated in the near future that Form 3800, "General Business Credit", will be changed in order to reflect the inclusion of this tax credit for such purposes.  Stay tuned.

It is unfortunate that President Obama's original proposal of a $5,000 tax credit for every net new employee hired by a small business in 2010, capped at $500,000 for any one employer was not adopted by Congress, since it may have been more easier to implement as well as made a more immediate impact on unemployment.

This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice.  For further information, please consult appropriate professional advice from your attorney and certified public accountant. 

Have a tax or an accounting question?  Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants.  For information and assistance on any tax and accounting issue, please visit our website:  Accountants CPA Hartford.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.  The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein.  The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor.

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