What You Need To Know About the HIRE Act
A recently passed federal law holds out the promise of some financial relief for contractors struggling in the current difficult economy. The Hiring Incentives to Restore Employment (HIRE) Act contains tax incentives designed to encourage businesses to hire and retain unemployed workers.
The incentives include a payroll tax holiday and an income-tax credit for retaining eligible employees. Contractors that hire seasonal workers will likely benefit from the break on payroll taxes. In addition, the new law benefits businesses that buy machinery and equipment in 2010 by retaining the $250,000 expensing limit under Section 179 of the tax code.
Payroll Tax Holiday
The employer portion of the Social Security payroll tax is currently equal to 6.2% of up to $106,800 of wages paid to an employee. The Hire Act exempts employers from paying their share of the Social Security tax on wages paid to qualified individuals from March 19, 2010, through December 31, 2010. The law does not place a limit on the number of qualifying workers an employer can hire.
The tax holiday is available for a newly hired employee who:
- Is hired (or rehired) after February 3, 2010, and before January 1, 2011.
- Has not been hired to replace a terminated employee unless the former employee left the employer voluntarily or was terminated for cause.
- Is not related to the employer (as defined in the law).
- Has been unemployed for the 60-day period ending on the date employment begins or has worked no more than 40 hours during the same 60-day period.
- Provides a signed affidavit certifying his or her unemployment status. Employers may use Form W-11, available on the IRS’s website (http://www.irs.gov), for this purpose.
Credit for Retained Workers
In addition to the payroll tax holiday, employers can claim an income-tax credit for retaining qualifying workers for at least 52 consecutive weeks. The credit for each retained employee is (1) $1,000 or (2) 6.2% of wages paid to the employee during the 52-week period, whichever is less. The credit is available only if wages paid to the employee during the last 26 weeks of the 52-week period are at least 80% of wages paid during the first 26 weeks.
Section 179 Expensing
As noted, the dollar limit on asset purchases eligible for Section 179 expensing will be $250,000 for 2010 as a result of the HIRE Act. The $250,000 deduction maximum is reduced to the extent the cost of qualifying property placed in service during the taxable year is greater than $800,000. The Section 179 expensing election is available for most non-real-estate assets.
We would be happy to help you determine if your firm can benefit from any provision of the HIRE Act.