As you may have heard, in an effort to combat high unemployment, President Obama signed the Hiring Incentives to Restore Employment Act (HIRE Act) into law on March 18, 2010. Among other things, this legislation gives qualified employers a break from the employer’s portion of Social Security taxes in 2010 on qualified new hires and a general business credit for each retained worker that satisfies a minimum employment period. It also includes a provision to extend the available increased expense deduction under Code Section 179 for equipment purchases made during 2010.
Payroll Tax Forgiveness for Hiring Unemployed Workers
The HIRE Act provides relief from the employer’s share (6.2%) of Social Security (OASDI) taxes on wages paid by a qualified employer with respect to certain covered employment. Qualified employers do not include the United States, any State or local government, or any instrumentality thereof. However, state colleges and universities are considered qualified employers.
To be considered “qualified” an employee must:
- Begin work for the qualified employer after February 3, 2010, and before January 1, 2011;
- Certify that he or she was employed for a total of 40 hours or less during the previous 60-day period prior to employment beginning;
- Not be employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and
- Not be a related party.
This provision applies to wages paid beginning on the day after enactment and ending on December 31, 2010. To allow the IRS time to establish new processes, the Company cannot simply stop paying the OASDI tax on wages paid to new hires.Employers who qualify for the OASDI forgiveness in the first quarter of 2010 will receive the benefit through a credit toward general second quarter 2010 OASDI liability. After the first quarter, however, the employer does not have to pay the OASDI tax as wages are paid.
Business Credit for Retention of Certain Newly Hired Individuals
Another benefit provided by the Act is that an employer’s general business credit is increased by the lesser of $1,000 or 6.2 percent of salary for each retained worker that satisfies a minimum employment period. Generally, a retained worker is an employee who is a qualified employee as defined above for purposes of the provision for payroll tax forgiveness. Additionally, the employee must:
- Continue to be employed by the employer for a period of not less than 52 consecutive weeks; and
- Receive wages during the last 26 weeks of employment that are at least 80-percent of the wages they received during the first 26 weeks of employment.
Due to the 52 week requirement, this credit will presumably be taken on 2011 tax returns.
Extension of Equipment Expense Deduction under Code Section 179 – $250,000
The Act also includes a provision that extends for one year the previous increase in the maximum amount that a business taxpayer may deduct for the cost of equipment. With the extension the available expense deduction is limited to $250,000 under Code Section 179 for 2010. The phase-out for this deduction is $800,000 for 2010.
This extension should be considered in your Company’s equipment purchasing plans. Unless extended again the expense deduction of $250,000 is scheduled to drop to $25,000 in 2011. The phase-out amount is also scheduled to be reduced to $200,000 in 2011.
For more information related to these benefits or for a full copy of the Hiring Incentives to Restore Employment Act, please contact Kyle Wininger at Harding, Shymanski & Company, P.S.C.
Kyle Wininger, CPA, CICA is a Consulting Manager at Harding, Shymanski & Company, P.S.C. – Certified Public Accountants and Consultants, an independent member of the RSM McGladrey Network. Harding, Shymanski & Company, P.S.C. provides accounting, tax and consulting services to clients from offices in Evansville, Indiana and Louisville, Kentucky and is one of the largest locally owned CPA firms in Indiana and Kentucky. Kyle can be reached at kwininger@hsccpa.com or 1-800-880-7800.
