New Law Offers Tax Incentives for Hiring

March 18, 2010 ( – The Hiring Incentives to Restore Employment (HIRE) Act was enacted into law on Thursday.

Under the Act employers who hire unemployed workers after February 3, 2010, and before 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, according to an Internal Revenue Service announcement. In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.       

This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2% share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.       

New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify, the announcement said.       

The new law requires that the employer 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. The IRS said it is currently developing a form employees can use to make the required statement.       

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees, but household employers cannot. Employers 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 IRS said it will post revised forms and further details on these two new tax provisions on its Web site during the next few weeks.      

The legislation initially included provisions extending the COBRA subsidy for displaced workers and providing funding relief for pension plan sponsors, but Senator Harry Reid (D-Nevada) stripped them out saying legislators needed to send a message that they were doing something about jobs (see Reid Splits HIRE Bill into Pieces).