Business Tax Incentives With The HIRE Act

The HIRE Act is one of the many business tax incentives that PayPros, Inc., working with Paradigm Partners, works to uncover for businesses with their tax incentive service program.

business tax incentives

Often referred to as a job stimulus bill, the HIRE Act (Hiring Incentives to Restore Employment) provides a business tax incentives through payroll tax exemption to employers who hire unemployed workers after February 3, 2010, through the end of 2010. The tax break applies to wages paid with respect to employment on the day after the HIRE Act becomes law through the end of 2010. Also in the HIRE Act, a new hire retention credit of up to $1,000 per individual is available for employers who retain these previously unemployed workers for at least 52 weeks in a row.

Payroll Tax Exemption (Section 101)

Section 101 of the HIRE Act provides details on the payroll tax exemption. Under these provisions, most employers do not have to pay their portion of Social Security taxes (6.2 percent) for newly hired, unemployed individuals, who are called “qualified individuals.” With one exception, this payroll tax exemption is not available to U.S. and state governments, or any of their political subdivisions (e.g., city or county governments). The exception is that the tax break is available to public institutions of higher education (as defined in §101(b) of the Higher Education Act of 1965).

To qualify for these business tax incentives, the Requirements for a Qualified Individual under the Hire Act are as follows:

  • The individual began employment with the qualified employer after February 3, 2010 and before January 1, 2011.
  • The individual was employed for no more than 40 hours in the last 60 day period ending on the date that the individual was hired.
  • The new hire needs to fill out an affidavit indicating that they were unemployed and sign it under penalties of perjury.
  • The individual was not employed to replace another employee unless the other employee resigned voluntarily or was terminated for cause.
  • The new employee cannot be a relative of any owner who has 50 or more percent ownership.
  • The IRS recently clarified several important aspects of the payroll tax exemption. The law applies to “wages paid by a qualified employer with respect to employment during the period beginning on the day after the date of enactment and ending on December 31, 2010.” The IRS interprets this to mean any wages paid on or after March 19, 2010, regardless of when the wages were earned.

    Employers of all sizes qualify for the payroll tax break. It applies to part-time and seasonal employees, regardless of exempt/non-exempt status or hourly/salaried payment method. Rehires would be included as well.

    New Hire Retention Credit (Section 102)

    Under Section 102 of the HIRE Act, if the qualified individual is retained by the employer for 52 consecutive weeks, the employer is entitled to a new hire retention credit of up to $1,000 per individual. The credit is equal to the lesser of 6.2 percent of wages or $1,000. In other words, if wages are at least $16,129.03, then the new hire retention credit is $1,000. Otherwise, it is 6.2 percent of wages. During the last 26 weeks of that period, the qualified individual must have wages that are at least 80 percent of the wages for the first 26 weeks.

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