The HIRE Act – What It Can Do For Your Bottom Line

Do you plan on increasing staffing levels this year?  If so, you may be interested in new tax incentives recently passed into law by the federal government.  On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act into law; it became immediately effective, and provides an incentive for you to increase your staffing levels between February 3, 2010 and December 31, 2010.  There are two incentives that encourage a business to increase its payroll:

1. A payroll tax incentive of 6.2%, essentially offsetting the employer’s portion of the FICA tax, with a maximum credit of $6,621.00 against wages paid to a qualified employee who was formerly unemployed. This incentive is good only against wages paid from March 19, 2010 through December 31, 2010. An individual is determined to be qualified if:

1. he or she began employment on or after February 3, 2010, but not later than December 31, 2010; and
2. he or she can certify that he or she has not been employed for more than a grand total of forty hours during the sixty day period immediately prior to starting employment for you.
3. he or she is not a replacement for another employee unless a replacement is necessary due to either:
4. 1. a voluntary resignation by the other employee; or
   2. layoffs previously implemented by your company; or
   3. a position that has opened up because your company has terminated another employee ‘for cause’ (because the term is very loosely defined, EMPO’s recommendation is to be careful with the use of this part of the qualification pending further guidance (if any) from the IRS); and
5. he or she is not related to any of the company’s owners – more information, including a detailed definition of a relative, can be found on the affidavit referenced below; and
6. he or she completes the IRS Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, which is attached to the newsletter email.

• The payroll tax credit is only for the FICA 6.2% employer-paid portion that is equivalent to what the employer would normally match on behalf of the employee. The employer tax credit does not affect the employer’s responsibility to withhold and remit the 6.2% employee contribution from each qualified employee’s paycheck, nor does it affect either the employee or employer portion of the Medicare tax.
• An eligible employee can be a new hire who has never worked for your company previously; or an employee who has been laid off, or another rehire who had not been laid off, provided that he or she is otherwise eligible as described in items a through e, above.
• You can also use this credit to expand your workforce through creation of a new position(s).
• If an employer claims the Work Opportunity Credit for an employee, the employer cannot also claim the payroll tax credit under the HIRE Act.  If your company claims the Work Opportunity Credit, you should consult with your tax preparer to determine which option is better for you to claim.  The IRS will be developing a form that will allow a company to opt out of the payroll tax credit in favor of the Work Opportunity Credit.

2. A one-time business tax credit of up to $1,000.00 (the lesser of $1,000 or 6.2% of the qualified wages paid to a qualified employee) may be claimed no earlier than on your 2011 business tax return provided that:

1. you hire a qualified employee as determined using the same criteria as in item 1, above; and
2. he or she remains on your active payroll for at least 52 consecutive weeks; and
3. he or she receives pay in the second 26-week period that does not ‘decrease significantly’ from the first 26-week period to the second 26-week period – unfortunately, ‘decrease significantly’ is the term defined in the law, and is open to interpretation pending further guidance (if any) from the IRS.

• If your business tax year does not follow the calendar year, your credit may need to be spread over the 2011 and 2012 tax returns.
• The IRS’ Technical Explanation of the HIRE Act is unclear as to whether the Work Opportunity Credit can be claimed along with the business tax credit.  Therefore, further guidance will need to be issued by the IRS on if (or how) the two credits can work together.  The payroll tax incentive described in item 1, above, will work with the business tax credit.

The payroll tax credit is effective for wages paid on or after March 19, 2010, and on or before December 31, 2010.  To estimate what this tax incentive means to your bottom line, multiply qualified wages you anticipate paying to the qualified employee in 2010 by 6.2%.  The IRS will be working to modify the Form W-2 to show qualified earnings.

The business tax credit will need to be claimed on your business tax return by the tax professional who handles your company’s business tax returns.

What should I do now?

You can start the process by providing each employee you have hired since February 3, 2010 with the attached Form W-11.  Going forward, you should provide each new hire with the Form W-11 as part of the new-hire package.  Remember that this program only works for an individual who was actually out of work.  So if you hire someone in a situation in which you cannot meet all the requirements listed above, then it is not necessary to complete the form.  Please do not hesitate to call your HR Consultant or EMPO if you have questions on this or any other matter.

By Scott Andreassen, EMPO's Director of HR Services

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