The Federal “HIRE” Act Gives Employers Substantial Incentives to Hire the Unemployed

Author: Lona L. Feldman Date: 04/25/2010

Categories: Employment Law & Litigation, Tax Services

The “Hiring Incentives to Restore Employment Act of 2010” (the HIRE Act, P.L. 111-147) can provide a substantial benefit for private-sector employers (including employers that are non-governmental nonprofit organizations) who are beginning to expand their businesses through the hiring of new employees. To provide employers with an incentive to hire unemployed individuals, the HIRE Act provides a payroll tax exemption and also provides up to a $1,000 tax credit for businesses that hire unemployed workers.

First, the HIRE Act exempts any private-sector employer that employs a worker who has been unemployed for at least sixty days from having to pay the employer’s 6.2 percent share of the Social Security payroll tax on that employee for the remainder of 2010.

Second, if the employer keeps the new worker on payroll for a continuous fifty-two week period, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after this threshold is reached. This credit would be used on the employer’s 2011 tax return. In order to be eligible, the employee’s pay in the second twenty-six week period must be at least eighty percent of his or her pay during the first twenty-six week period.

Workers hired after February 3, 2010 (the date of introduction of the legislation) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18, 2010 receive the exemption for payroll taxes. The payroll tax benefit does not apply for the first quarter of 2010. For both benefits, there is no minimum weekly number of hours that the new employee must work for the employer to be eligible for the HIRE Act benefit, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.

In order to establish the new employee’s qualification under the HIRE Act, the new employee must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than forty hours during the sixty day period ending on the date the employment begins. The HIRE Act is meant to create an incentive for employers to hire workers who have been out of work for at least this two month period.

An employer cannot, however, claim these benefits under the HIRE Act for employing family members. In addition, the employer cannot claim a benefit for a new employee (even if that new employee would have otherwise qualified under the HIRE Act) who replaces another employee who held the same position, unless the prior employee left the job voluntarily or for cause. You cannot use the HIRE Act to replace workers who are fired without cause.

The most important aspect of the HIRE Act incentives is that they apply to any eligible employee. It does not matter whether the employee is a lower level hourly worker, or a higher level executive. If the new employee meets the unemployment qualifications and if the new employee is not replacing another worker (unless that worker left voluntarily or was fired for cause), the cost of hiring the new worker will be reduced by these significant tax benefits. Form W-11 is to be completed by the new hire for the employer to be eligible for the incentives under this legislation.

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