the HIRE Act
The HIRE (Hiring Incentives to Restore Employment) Act passed in the first quarter of this year can provide employers with significant savings for hiring people who have been unemployed for at least 60 days. However, the logistics of ensuring you qualify for the associated tax breaks can be a challenge.
The first benefit your new hire brings in is a “payroll tax holiday” in the form of an exemption from the employer’s portion of the social security tax in 2010. That adds up to 6.2% of the employee’s wages up to $106,800. The law wasn’t passed until March, so the exemption starts with wages paid after March 18th, 2010 through the end of the year. The employee deductions for payroll taxes remain the same, and employers still must pay the portion of FICA that goes to Medicare Hospital Insurance
The qualified new employee can be full or part time and may have started work as early as February 3rd, 2010. The new hire must certify that they were not employed more than 40 hours during the 60-days before you hired them. In addition once this employee has been on the payroll for 52 consecutive weeks, the employer gets a tax credit equal to 6.2% of wages paid for the year, up to $1,000. That’s the good news.
The challenge comes when you try to run a payroll with a new deduction structure. You also need to make sure you are using the correct new payroll tax forms when you file and you need to use the proper certification form to make sure the employee really qualifies for the benefits. If you hire people who are eligible for the Work Opportunity Tax Credit, you need to decide if you want to use that tax benefit, or the HIRE Act. You can’t do both. However, if you re-hire someone who is getting COBRA tax relief that is OK.
Getting all this done right is apparently not easy. Feedback from the IRS indicates that the new quarterly returns are posing challenges for employers. Needless to say, employers who fail to satisfy IRS requests for clarification can expect to have the returns processed without the payroll tax exemption. The IRS compliance plan for the HIRE Act is still in development, though updates are available.
The key to making the HIRE Act benefits work for your
business involves extra care when completing quarterly
payroll tax returns and certification forms, as well as
complying with all the recordkeeping and retention
requirements associated with the program.
Nicksich & Neel provides payroll services for many small
businesses and can offer you cost effective support for all
your payroll needs. Set up a time to
review your specific needs with a phone call or e-mail
The materials related to taxes on www.thecpa.us are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies specifically to your situation. We are happy to answer any questions you may have regarding this information. Please contact us for an appointment at firstname.lastname@example.org.