In March, Congress passed the HIRE (Hiring Incentives to Restore Employment) Act of 2010. As with any tax legislation, there is significant complexity, but the following is a basic overview that you may find helpful:
Payroll Tax Holiday – The employer of a qualified employee will not have to pay the employer match for the 6.2% Social Security portion of that employee’s wages in 2010. A qualifying employee:
- Is hired after Feb. 3, 2010 and before Jan. 1, 2011;
- Certifies by signed affidavit, under penalty of perjury, that he/she has not been employed for more than 40 hours during the 60-day period ending on the date his/her employment begins with the new employer;
- Is not employed to replace another employee; and
- Is not related to the employer (under the rules for the Work Opportunity Tax Credit (WOTC)).
Note that this holiday does not apply to the employee’s 6.2% Social Security withholding. Also note that the holiday does not apply to the 1.45% Medicare tax. Since the maximum Social Security base in 2010 is $106,800, the maximum value of the holiday is $6,621.60 (the “$6,000 credit” generally reported in the press.
Additionally, the $6,000 limit is increased to $12,000 for qualified veterans and reduced to $3,000 for qualified summer youth employees. If the employee is a long-term family assistance recipient, the credit is a percentage of first- and second-year wages, up to $10,000 per employee. The qualifying details of these special groups could not be included in this email but we can provide that information to you upon request.
Also note that the holiday does not apply to the first quarter of 2010. Instead, the credit that would have been allowed between Feb. 3 and Mar. 31, 2010 will be allowed on the employer’s 2nd quarter Form 941. This allows time for the IRS to issue guidance to employers and payroll companies as to how to report the credit.
Lastly, an employer can elect out of the payroll holiday if the WOTC would provide a greater benefit to the employer.
New Up-to-$1,000 Credit for Each “Retained Worker” – A general business credit of up to $1,000, which cannot be applied against an employer’s payroll tax liability, will be allowed for any employer of a “retained employee.” A retained employee is one who:
- Was employed by the taxpayer/employer on any date during the tax year;
- Was employed for at least 52 consecutive weeks; and
- Had wages during the last 26 weeks of that same 52 week period equaling at least 80% of his/her wages during the first 26 weeks of the period.
The credit is 6.2% of wages with a maximum of $1,000 per employee. If an employee earned more than $16,129.03 during the 52 weeks noted above, the credit is $1,000. Since the 52 week requirement cannot be met before Feb. 2, 2011, the first year the credit will be available is 2011. Any such credit cannot be carried back further than 2010 (the year of enactment).
Extension of $250,000 Expensing Election (Sec. 179) – The limit for expensing of tangible property acquired during the year has been $250,000 since 2008 but was scheduled to reduce to $25,000 on Jan. 1, 2010. This tax bill extends the higher limit for tax years beginning in 2010 subject to the same phase-out if acquisitions exceed $1,050,000.
If you have any questions regarding any of the above information or any other tax issues or questions, please do not hesitate to contact Aronson & Company’s Tax Services Group at 301.231.6200.