Deadline Nears for Hiring Incentives

Employers have until the end of the year to take advantage of hiring incentives under the Hiring Incentives to Restore Employment Act. The Treasury Department's program gives firms a tax credit of up to $1,000 and an exemption from some Social Security payroll taxes for hiring employees who have been unemployed for 60 days or more. See more information below and if you have questions please contact our office for details on how you can take advantage of these tax savings.

Obama Signs HIRE Act Into Law

What does this mean for small businesses?

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act (Pub. Law 111-147), one day after it received final approval by the U.S. Senate. The HIRE Act creates:

A limited social security tax “holiday” for the employer share of social security tax on wages paid to a previously unemployed new hire, and a separate business tax credit of up to $1,000 if the employee is employed for at least 52 weeks.

The aim of the Act is to free up funds for employers to hire individuals who have been out of work to fill new positions and further stimulate the recovering economy.

Social security tax "holiday"

The Act provides relief from the employer share of social security tax, which is 6.2% of covered wages up to $106,800, on wages paid by a “qualified employer” to a “qualified individual” from March 19 (the day after the Act was enacted) through December 31, 2010. Wages paid to a qualified individual on or before the date of enactment (March 18) or after December 31, 2010 do not qualify for the social security tax relief. Wages earned by a qualified individual before March 19 but paid on or after March 19 do qualify for the social security tax relief.

The relief from the employer share of social security tax applies to services performed in a trade or business of a qualified employer or in furtherance of activities related to the tax-exempt purpose or function of a tax-exempt entity.

Special rule for 1st quarter wages 

In order to make implementation of the social security tax relief somewhat more feasible, the Act states that instead of immediately stopping payment of the employer share of social security tax on the day after the Act is signed into law (March 19), the employer will treat the employer’s social security tax on qualified individuals’ wages paid from March 19-31 as a payment against the employer share of social security tax due for the second quarter of 2010. The payment will be treated as made on the due date of the employer share of social security tax in the second quarter.

Therefore, the employer must deposit the full employer share of social security tax for wages paid in the first quarter and report it on Form 941, Employer’s Quarterly Federal Tax Return, and then treat the amount that would have qualified for the social security tax reduction under the HIRE Act as a payment in the second quarter, which allows the employer to reduce its social security tax payments for that quarter on wages paid to employees who are not “qualified individuals.” This payment will be reflected on a revised Form 941 for the second quarter, which is being developed by the IRS.

Tax ‘holiday’ applies to RRTA tax also. The social security tax relief provided by the HIRE Act also applies to the employer share of the equivalent Railroad Retirement Tax Act tax.

Employee share still must be withheld; no Medicare exemption. The social security tax “holiday” does not apply to the employee share of the tax, which still must be withheld and deposited by the employer. The “holiday” also does not apply to either the employer or employee share of Medicare tax.

Qualified employer defined

A qualified employer is any employer other than the United States, a state or local government, or any government instrumentality. However, public institutions of higher education are qualified employers

Employers can "opt-out"

Qualified employers can elect to not have the social security tax “holiday” apply. The IRS will provide the manner for making such an election.

Qualified Individual Defined

A qualified individual is any individual who:

• Begins employment with a qualified employer after February 3, 2010, and before January 1, 2011.
• certifies in a signed affidavit (i.e., statement), under penalties of perjury, that the individual has not been employed for more than 40 hours during the 60-day period ending on the day the individual begins work for the qualified employer. The IRS has develped for W11 for employees to certify they qualify. Go to http://www.irs.gov/pub/irs-pdf/fw11sp.pdf
• is not employed by the qualified employer to replace another employee unless the other employee left employment voluntarily or was terminated for cause, and
• is not related to the qualified employer or to anyone owning 50% or more of the stock or other capital of the employer.

What about rehires? While the Act doesn’t specifically state whether it applies to employees who are rehired by the same employer, a representative of the Senate Finance

Committee who spoke at APA’s Capital Summit on March 12 said that rehired employees would qualify if they meet the same qualifications as new hires. Replacements for laid-off employees are not ‘qualified individuals.’ Employees who are hired to replace employees who were involuntarily terminated (unless they were terminated for cause) are not qualified individuals under the HIRE Act even if they meet the other criteria. The Act is designed to encourage employers to create and fill new positions, not replace or hire back employees who were laid off during the recession.

 While the IRS is expected to issue guidance quickly on the many question about tax depositing and reporting issues created by the Act, if you have questions or need help to determine whether any of these new provisions apply to your circumstances please contact our office.

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