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Cash Flow Planning for Life

Helping you reach your personal & professional financial goals.

Enacted on March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act has two new tax benefits that are available to employees who hire certain previously unemployed workers (“qualified employees”).

Payroll Tax Forgiveness for Hiring Unemployed Workers:

The HIRE Act provides relief form the employer share of OASDI (a.k.a. social security or FICA tax) taxes on wages paid by a qualified employer with respect to certain covered employment.  Covered employment is limited to service performed by a qualified individual in a trade or business of a qualified employer, or in the furtherance of the activities related to the purpose or function constituting the basis of the employer’s exemption under Code Sec. 501.  This provision applies to wages paid beginning on the day after enactment and ending on December 31, 2010.

A qualified individual is any individual who:

1.  begins work for a qualified employer after February 3, 2010 and before  January 1, 2011.  Employers will need to review new hires back to February 3, 2010 for eligible employees and obtain signed affidavit.  However, eligible wages are after March 18, 2010 not February 3, 2010.

2.    certifies by signed affidavit (under penalties of perjury) that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment begins.  Affidavit can be found at the, Form W-11.

2.    is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and

4.    is not a related party.

Employees who qualify for the OASDI forgiveness in the first quarter of 2010 will receive the benefit through a credit toward general second quarter 2010 OASDI liability; they can’t stop paying the 6.2 percent OASDI tax immediately on wages paid to new hires.  After the first quarter, however, the employer does not match the 6.2 percent tax as wages are paid, employer can reduce weekly or semi-weekly deposits.  1.45 percent Medicare tax is not part of the HIRE Act, employers need to continue depositing Medicare tax are required.

A qualified employer may not receive the work opportunity tax credit or FICA tip credit on wages paid to an individual during the one-year period beginning on the hire date for the same wages used to qualify for the forgiveness of payroll tax.  However, an employer may elect out of the payroll tax forgiveness, therefore for each employee hired, all possibly credits will need to be calculated for best possible benefit.

Business Credit for Retention of Certain Newly Hired Individuals:

Under the HIRE Act, an employer’s general business credit is increased by the lesser of $1,000 or 6.2 percent of salary for each retained worker that satisfies a minimum employment period.  Generally, a retained worker is an individual who is a qualified individual as defined for purposes of the provision for payroll tax forgiveness.  However, the credit is available only with respect to such individual, if the individual:

1.    is employed by the employer on any date during the tax year;

2.    continues to be employed by the employer for a period of not less than 52 weeks; and

3.    receives wages for such employment during the last 26 weeks of such period that are at least 80 percent of such wages during the first 26 weeks of such period.

Therefore, an employer will qualify for the full $1,000 credit for each new hire with a salary over the 52 week period of at least $16,129.  An employer that hires some part-time new employees, in addition to full-time employees, is entitled to the full $1,000 credit, if, of course, the part-time or full-time employee decides to stay for 52 weeks.

Because payroll taxes are deductible as an ordinary and necessary business expense, employers may have a correspondingly smaller business expense deduction on their 2010 tax returns.  By combining the benefit of the business credit for new hires with the forgiveness incentive, employers in the highest brackets will realize a net tax benefit of just over 4 percent of wages paid to qualified new employees, up to the $106,800 social security maximum wage base.  Therefore, for the maximum $6,621.60 tax forgiveness for the new hire, a net benefit of approximately $4,504 would be realized.

If you have any questions regarding the hiring incentives under the HIRE Act, please feel free to contact me at (239) 384-9688 or by visiting the Contact page on my web site.

Thank you,

PS – Complete information, questions and answers are available here on the IRS web site.


This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.
LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.

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