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HIRE Act Offers Significant Tax Savings

7 Aug 2010

The Hiring Initiatives to Restore Employment (HIRE) Act, signed into law on March 18, 2010, includes two incentives that may provide significant tax savings for qualifying organizations that hire new employees. These incentives include a payroll tax exemption and a credit worth up to $1,000 for retaining such employees. Because a large part of the incentive is tied to payroll taxes, the legislation can immediately enhance employers' cash flow by permitting employers to retain their portion of the Social Security tax ordinarily remitted to the IRS.Taxand US addresses common reactions from taxpayers considering these incentives.

Qualifying employees include individuals hired between February 3, 2010, and December 31, 2010, who have not worked more than 40 hours within the 60 days prior to being hired. The payroll tax exemption has no cap or limit on the total amount of tax benefits that can be claimed by an employer. Employers can save up to $6,622 per qualifying employee, whether they hire one new employee or hundreds of new employees. In addition to the current payroll tax exemption, employers may also receive an income tax credit of up to $1,000 for each qualifying employee who is retained for at least 52 consecutive weeks after being hired.

The tax benefits are available to a broad range of businesses, including agricultural employers, tax-exempt organizations, tribal governments, and public colleges and universities. Taxpayers that historically claimed the Work Opportunity Tax Credit (WOTC) have generally adapted the HIRE Act requirements to their existing hiring procedures. However, the HIRE Act incentives have the potential for a greater positive impact on employers since they apply to a broader base of potential new employees. Despite the broad application of the rules and fairly limited reporting requirements, the legislation has received a lukewarm reception from many potentially eligible employers.

Taxand's Take

The HIRE Act tax incentives apply to a large range of potential new employees. In addition, the reporting requirements are fairly limited and should not be a significant burden to most employers. Given the potential HIRE Act benefits, taxpayers should review their hiring activity during 2010, and seriously consider taking advantage of this incentive. Employers must also ensure that their books and records are in order to support the tax savings available under the HIRE Act.
As outlined above, the HIRE Act payroll tax exemption allows employers to avoid paying their 6.2 percent share of Social Security tax on all wages paid to qualified employees from March 19, 2010, through December 31, 2010. With no limit on a qualified employee's salary that is eligible under the HIRE Act, this can be a significant incentive even for employers who are hiring a few new employees in certain high-paying areas, such as engineering.

A surprising number of taxpayers have been indifferent to the idea of applying for the HIRE Act benefits. In many cases, the HIRE Act offers significant payroll tax savings for companies that are hiring new employees during 2010. Because it is a limited, short-term program with a definite expiration date (the payroll tax exemption program does not even last a year and expires on December 31, 2010), many taxpayers seem hesitant to spend too much time developing the necessary systems and protocols required to comply with the HIRE Act rules. However, most employers already have similar systems in place to comply with their normal federal and state payroll tax reporting requirements. And, as mentioned above, if you are already taking advantage of the WOTC, it should be relatively painless to adapt your WOTC reporting procedures to the HIRE Act.

Read the full article from Taxand US here.

Your Taxand contact for further queries is:
Kathleen King
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Taxand's Take Author