President Obama has signed into law the Hiring Incentives to Restore Employment (HIRE) Act, which is focused on accelerating the hiring of unemployed workers.
The HIRE Act has many provisions that impact employers, including a payroll tax exemption and increased tax credits for employers that meet certain eligibility requirements. The legislation immediately enhances employers’ cash flow by permitting employers to retain the employer portion of the Social Security tax ordinarily remitted.
Social Security Tax Exemption
The 6.2% Employer Social Security Tax exemption applies to 2010 wages paid after March 18, and before January 1, 2011, to individuals hired after February 3, 2010, who were previously unemployed for at least 60 days and who do not exceed the $106,800 Social Security wage base.
• Employers can save the 6.2% Employer Social Security Tax, whether they hire a $40,000worker or a $90,000worker. Employers, including nonprofit organizations, and colleges and universities, would not have to wait until 2011 to benefit from this tax relief because savings would accrue with each payroll processed.
• The legislation also encourages businesses to hire workers earlier in the year because the tax benefit will be greater. For example, a $60,000 worker hired on April 1, 2010 saves an employer about $2,800 in taxes. Delaying the hiring until June 1 would reduce the savings to about $2,200.
• This exemption has no cap or limit as to the total amount of tax benefits that can be claimed by an employer. Employers can save up to $6,622 per qualifying worker, whether they hire one worker or hundreds of new workers.
Employers will receive an income tax credit which is either $1,000 for each qualifying worker hired after February 3, 2010, and employed for at least 52 consecutive weeks, or 6.2% of wages paid to the qualifying worker over the 52-week period, whichever is less. Wages during the last 26 weeks must be at least 80 percent of wages paid for the first 26 weeks.
• Any new hire must certify “by signed affidavit,” under penalties of perjury, that he/she has “not been employed for more than 40 hours during the 60-day period ending on the date such individual begins such employment.”
• Neither the 6.2% Employer Social Security Tax exemption nor the retention tax credit is permitted if a person is hired to replace another employee “unless such other employee is separated from employment voluntarily or for cause.”