A law signed into effect by President Obama on March 18 aims to encourage employment and stimulate the economy by offering incentives to businesses for eligible hires.
Under the Hiring Incentive to Restore Employment, or HIRE, Act, a payroll tax exemption and a new hire retention credit are available to qualified companies that hire individuals who were previously unemployed or working only part-time. Under the law, part-time is defined as working 40 hours or less throughout the 60 days prior to the employee’s start date with the company.
Qualified employersQualified organizations include for-profit and nonprofit private-sector employers and public higher education institutions. Household employers, such as families that employ someone to clean, are not considered qualified.
A business is eligible for a 6.2 percent payroll tax incentive for hiring an unemployed person after Feb. 3, 2010, and before Jan. 1, 2011, on wages paid March 19–Dec. 31, 2010. In essence, the employer is exempt from matching the Social Security portion of the Federal Insurance Contributions Act tax. An enterprise covered by the Railway Retirement Act, as opposed to FICA, will discover corresponding tax benefits through HIRE.
The tax credit does not apply directly to wages paid and reported during first-quarter 2010 because the IRS needs time to provide additional direction and recognizes that businesses may need time to modify payroll procedures.
If the new hire is retained for at least 52 weeks, the employer may claim a general business retention tax credit of up to $1,000 on 2011 income tax returns. During the last 26 weeks of the period, the employee must be paid at least 80 percent of the wages received during the first 26 weeks. If an establishment is using the Work Opportunity Tax Credit and wants to continue to do so, the tax benefits under HIRE may not be applied.
Employee eligibility In order for the employer to reap the benefits of HIRE, the new employee must truthfully – under penalties of perjury – complete the Department of the Treasury, IRS form W-11, HIRE Act Employee Affidavit or a similar document. The record will certify that the new hire is a qualified employee under the law.
The form, which can be found at
www.irs.gov/pub/irs-pdf/fw11.pdf, must be maintained with other payroll and income tax records.
Employees are not considered eligible additions for HIRE benefits if they are hired to replace other associates, unless those employees resigned voluntarily or were terminated for cause, including downsizing. They also are not qualified if they worked for the company or a related entity in the past, unless they were laid off or terminated. Eligible employees also may not be related to the employer.
The law defines “related” as a sibling, stepsibling, stepparent, niece, nephew, aunt, uncle, in-law, child or descendent of the child, and parent or ancestor of the parent. Related is further defined as being related to, or a dependent of, anyone who owns more than 50 percent of the outstanding stock or capital and profits interest. Estates or trusts must refer to Section 51(i)(1) and Section 152(d) (2) of the law to determine eligibility.
Job responsibilities performed by eligible hires must be within a corporation’s trade or business.
For nonprofit entities, the eligible employees’ job duties must be related to the purpose of the organization, as per Internal Revenue Code 501(a). Employees may be full-time, part-time, seasonal or temporary for the payroll tax incentive, but seasonal and temporary employees are not eligible for the retention tax credit.
Lynne Haggerman, M.S., is president/owner of Lynne Haggerman & Associates LLC, a Springfield firm specializing in management training, retained search, outplacement and human resource consulting. She can be reached at lynne@lynnehaggerman.com.[[In-content Ad]]
