Tax credits mean good news for employers! 

 

On March 18, 2010 President Obama signed into law the Hiring Incentives to Restore Employment Act (HIRE Act).  The HIRE Act carries two significant tax incentive components for employers:  a Social Security tax forgiveness and a retention tax credit.  The first starts immediately for employers hiring qualified employees through the remainder of 2010 and the second can be earned by employers who retain qualified employees for a minimum of 52 consecutive weeks.  The following is an overview of how both incentives work.

 

Social Security Tax Forgiveness:

Employers will receive a 6.2% Employer Social Security Tax Exemption on wages paid to “qualified employees” after March 18, 2010 and before January 1, 2011, up to the Social Security maximum of $106,800.  The maximum credit per qualified employee is $6,621.  To be a qualified employee the new employee must:

·        Start work after February 3, 2010 and before January 1, 2011.

·        Be previously unemployed and not have worked more than 40 hours within the 60 days prior to the employee’s start date.

·        Not replace current employees unless former employees were terminated for cause or left employment voluntarily.

·        Not be related to the employer

Qualified employees may work less than full time hours, and under certain circumstances, may be rehired from a previous lay off.  To obtain maximum tax savings per employee it is in the best interest of the employer to hire qualified employees as early in the year as possible as the exemption stops on wages paid after January 1, 2011.  As an example, if an employee earning $40,000 annually is hired on April 1, 2010, the Social Security tax savings to the employer would be approximately $1,900.  If the same employee was not hired until August 15, 2010, the savings would be cut approximately in half to $950.  Social Security tax forgiveness can be used to offset scheduled tax deposit liabilities beginning April 1, 2010 and accrue with each payroll processed.  Although the details on documenting qualified employees are still being worked out we wanted to provide an overview of this legislation now.  We will continue to monitor and provide updates as additional information becomes available.

 

Retention Tax Credit:

As another benefit for retaining employees who qualify for Social Security tax forgiveness, the HIRE Act provides up to a maximum $1,000 tax credit to employers for each qualified retained employee as a Section 38(b) business tax credit.  The credit is the lesser of 6.2% of wages or $1,000.  To be eligible for the credit the qualified retained employee must:

  • Be employed for 52 consecutive weeks.  There is no provision for prorating the credit.
  • Earn wages during the last 26 week period that are at least 80% of the wages for the first 26 week period.

These tax credits will be available to be taken on employers’ 2011 income tax returns.  The HIRE Act does not allow carry back of any unused Section 38 business tax credits that are attributable to the provision for retaining workers.  Finally, the Congressional Record makes clear that a PEO client is entitled to the retention credit.

 

Modern Business Associates appreciates your business and is available to assist as you navigate through these significant legislative changes.  We look forward to continuing to support your organization’s payroll, employment tax, workers’ compensation and human resources needs.  While we focus on these areas, you can concentrate on your core business needs and goals. 

 

Should you have any questions, please do not hesitate to contact us.