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Your Legal Corner - Client Alert Blog

Hire Act - Tax Breaks For Employers Who Hire New Employees

Written By: Melissa C. Marsh, Esq., California Attorney, April 2010 Add to Favorites
On March 18, 2010, President Barack Obama signed into law the Hiring Incentives to Restore Employment Act (HIRE Act). The HIRE Act provides both immediate and deferred tax benefits to employers who hire certain previously unemployed workers (“qualified employees”).

Who is a Qualified Employer?

As stated above, a qualified employer is any employer, other than a federal or state governmental entity.

Who is a Qualified Employee?

A qualifying employee is any full or part time employee who:

  1. is hired by a qualified employer between February 3, 2010 and December 31, 2010;
  2. certifies by affidavit, signed under penalties of perjury of law, that s/he has not been employed for more than 40 hours during the 60-day period preceding the employee’s hire date (See IRS Form W-11 (Hire Act Employee Affidavit);
  3. is not a "related person" (e.g., family member or relative of the employer, or the majority owners of a corporate entity); AND
  4. is not replacing another employee, unless the former employee being replaced voluntarily quit, or was fired for cause (gross misconduct such as theft, as opposed to a mere error in judgment such as being late).
Immediate Tax Benefit: 6.2% Waiver on Payment of FICA

The first tax benefit is immediate and provides the employer with a payroll tax exemption, such that the employer will be exempt from remitting payment of the employer’s 6.2 percent share of the social security tax on wages paid to a qualifying employee from March 19, 2010 through December 31, 2010.

Additional Deferred Business Tax Credit Up To $1000

The second tax benefit applies if the qualified employee remains employed for at least 52 consecutive weeks and certain pay levels are maintained. If such is the case, the employer will be eligible to claim a one-time general business tax credit (the New Hire Retention Credit ) for each qualifying employee employed for a minimum of 52 consecutive weeks. The $1,000 maximum credit applies for wages paid in excess of $16,129.03.

It should be noted that employers may NOT claim both the New Hire Retention Tax Credit and the Work Opportunity Tax Credit (WOTC). The WOTC is an employer business tax credit for employing individuals who are members of certain targeted groups. See IRS Form 8850 for more information.

The HIRE Act also extends the $250,000 tax deduction for small businesses that make capital improvements in 2010.

What Employers Should Do Now

Employers seeking to hire new employees should:

  • document the termination of any existing employees;
  • have potential new hires complete IRS Form 11 Hire Act Affidavit;
  • complete IRS Form W-2 and IRS Form W-3 which have been revised to reflect changes made by the HIRE Act. A new code (CC) for Box 12 on IRS Forms W-2 and W-3 has been added for employers to report the amount of wages covered by the HIRE Act payroll tax exemption for qualified employees; AND
  • have your payroll service use IRS Form 941 (which is presently being updated by the IRS and expected to be available in May 2010) to claim the payroll tax exemption for eligible new hires.
For more information, please see HIRE Act: Questions and Answers for Employers posted on the IRS website.

This office does not provide tax advice. Please confirm all information in this post with your CPA.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that, to the extent this communication (or any attachment) concerns any tax matter, it was not written to be (and may not be) relied upon to (1) avoid tax-related penalties under the Internal Revenue Code, or (2) promote, market or recommend to another party any transaction or matter addressed herein (or in any such attachment).

Tags: tax, tax break, tax credits, tax decuction
Posted In: Business Law Bulletin  Employment Law News  Tax Update 

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.