New Tax Incentives for Employers Who Hire in 2010
By Mary Ellen Schill
March 19, 2010
On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment (“HIRE”) Act. The HIRE Act amends the Social Security tax provisions of the Internal Revenue Code by exempting wages paid to previously “unemployed” individuals from the employer’s Social Security tax obligation. Under the HIRE Act, wages paid by employers to previously unemployed employees hired after February 3, 2010 and before January 1, 2011 are exempt from the employer’s (not the employee’s) 6.2% Social Security tax. The exemption applies to wages paid to those individuals from March 19, 2010 through December 31, 2010. The exemption does not apply to the employer’s Medicare tax (1.45% of wages). In addition, employers who retain such individuals for at least 52 consecutive weeks can claim an additional general business tax credit of up to $1,000.
To be considered “unemployed” for purposes of the HIRE Act, an individual must certify that he/she was not employed for more than 40 hours for someone else during the 60 days prior to beginning employment. The IRS is working on forms which can be used for this certification. In addition, a newly hired individual that replaces an employee (rather than filling an open position) will qualify only if the prior employee left voluntarily or with cause. Furthermore, an individual who is related to the employer does not qualify.
Both for-profit and not-for-profit employers are eligible for the tax benefits. Governmental employers are excluded, however, except for public colleges and universities. The exemption for wages paid to these eligible individuals cannot be applied during the first quarter of 2010, but the exempt amounts for the first quarter can be taken as a credit during the second calendar quarter of 2010.
If you have questions regarding the above, please contact Mary Ellen Schill, the author of this article, or any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware.
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