On March 18, 2010, the Hiring Incentives to Restore Employment Act (“HIRE”) was enacted into law. The Act offers timely benefits to the employers who hire unemployed workers.
Under the HIRE, qualified employers who hire unemployed workers may qualify for two main tax benefits.
First, under the HIRE, Employers who hire unemployed workers between February 3, 2010 and January 1, 2011 may qualify for a 6.2% payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after the date of enactment. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers will still have to withhold the employee’s share of Social Security taxes, as well as income taxes. Moreover, both employers and employees will still have to pay their share of Medicare taxes.
Second, employers may claim an additional general business tax credit of up to $1,000 per each worker retained.
Notice, new workers filling existing positions may also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.
Types of Employers Qualified to Claim HIRE Benefits
Businesses, agricultural employers, tax-exempt organizations and public colleges/universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.
When to Claim HIRE Benefits
Employers may claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.
The additional business tax credit should be claimed on the employers’ 2011 income tax returns.
Under the HIRE, in order to benefit from the new law, employers must get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period.