Business
tax changes in the 2010 HIRE Act
Hello,
I'm writing to give you an
overview of the key tax changes affecting business in the recently
enacted Hiring Incentives to Restore Employment (HIRE) Act. Please call
our offices for details of how the new changes may affect your specific
business. (Attached is the federal
W-11 Form which you will need if you are taking advantage of the
HIRE Act).
The President recently signed
into law the "Hiring Incentives to Restore Employment Act of
2010" (the 2010 HIRE Act), the centerpiece of which is a payroll
tax holiday and up-to-$1,000 tax credit for businesses that hire
unemployed workers. Here's an overview of these new hiring incentives.
Payroll tax holiday and
up-to-$1,000 credit for employers who hire unemployed workers. To help stimulate the hiring of workers by the
private sector, the new law exempts any private-sector employer that
hires a worker who had been unemployed for at least 60 days from having
to pay the employer's 6.2% share of the Social Security payroll tax on
that employee for the remainder of 2010. A company could save a maximum
of $6,621 if it hired an unemployed worker and paid that worker at
least $106,800-the maximum amount of wages subject to Social Security
taxes-by the end of the year. As an additional incentive, for any
qualifying worker hired under this initiative that the employer keeps
on payroll for a continuous 52 weeks, the employer is eligible for an
additional non-refundable tax credit of up to $1,000 after the 52-week
threshold is reached, to be taken on their 2011 tax return. In order to
be eligible, the employee's pay in the second 26-week period must be at
least 80% of the pay in the first 26-week period.
Workers hired after the date of
introduction of the legislation (Feb. 3, 2010) are eligible for the
payroll tax forgiveness and the retention bonus, but only wages paid
after the date of the new law's enactment receive the exemption for
payroll taxes.
Here are some additional
features of the new hiring incentive:
- The tax benefit of the new incentive
is immediate. It puts money into a business' cash flow
immediately, since the tax is simply not collected in the first
place.
- The tax benefit generally applies only
to private-sector employment, including nonprofit
organizations-public sector jobs are generally not eligible for
either benefit. However, employment by a public higher education
institution would qualify.
- There is no minimum weekly number of
hours that the new employee must work for the employer to be
eligible, and there is no maximum on the dollar amount of payroll
taxes per employer that may be forgiven.
- For workers that would otherwise be
eligible for the "Work Opportunity Tax Credit," the
employer must select one benefit or the other for 2010-no double
dipping.
- An employer can't claim the new tax
breaks for hiring family members.
- A worker who replaces another employee
who performed the same job for the employer is not eligible for
the benefit, unless the prior employee left the job voluntarily or
for cause.
- For the hiring to qualify, the new
hire must sign an affidavit, under penalties of perjury, stating
that he or she has not been employed for more than 40 hours during
the 60-day period ending on the date the employment begins.
- The incentive is not biased towards
either low-wage or high-wage workers. Under the measure, a
business saves 6.2% on both a $40,000 worker and a $90,000 worker.
- The payroll tax holiday does not apply
with respect to wages paid during the first calendar quarter of
2010, but the amount by which the Social Security payroll tax
would have been reduced under the payroll tax holiday provision
during the first calendar quarter is applied against the tax
imposed on the employer for the second calendar quarter of 2010.
- The Act creates a similar new set of rules
permitting a payroll tax holiday for railroad retirement tax
purposes.
- The credit for retaining qualifying
new hires is the lesser of $1,000 or 6.2% of the wages paid by the
taxpayer to the retained worker during the 52-consecutive-week
period. Thus, the credit for a retained worker will be $1,000 if,
disregarding rounding, the retained worker's wages during the
52-consecutive-week period exceed $16,129.03. However, the credit
is not available for pay not treated as wages under the Code
(e.g., remuneration paid to domestic workers).
Direct payment option for
certain tax credit bonds. State and local governments have the ability to issue
special purpose tax credit bonds for school construction, energy
conservation and renewable energy. The federal government subsidizes
these tax credit bonds by providing investors in these bonds with a federal
tax credit in place of interest that would otherwise be payable on the
bond. In lieu of providing investors with federal tax credits, the new
law allows issuers of qualified school construction bonds, qualified
zone academy bonds, clean renewable energy bonds, and qualified energy
conservation bonds to elect to receive a direct payment from the
federal government equal to the amount of the federal tax credit that
would otherwise be provided for these bonds.
Revenue offsets. To pay for the tax incentives, the Act includes
revenue offsets consisting of: (1) a comprehensive set of measures to
reduce offshore noncompliance by giving IRS new administrative tools to
detect, deter and discourage offshore tax abuses; and (2) a three-year
delay (through 2020) of implementation of worldwide allocation of
interest-a liberalized rule for allocating interest expense between
U.S. sources and foreign sources for purposes of determining a
taxpayer's foreign tax credit limitation.
Extension of enhanced small
business expensing (Section 179). The new law gives a one-year lease on life to
enhanced expensing rules, which allow qualifying businesses the option
to currently deduct the cost of business machinery and equipment,
instead of recovering it via depreciation over a number of years. For
tax years beginning in 2010, the maximum amount that a business may
expense is $250,000, and the expensing election begins to phase out
when a business buys more than $800,000 of expensing-eligible assets.
These dollar limits are the same as those that were in effect for 2008
and 2009.
I hope this information is
helpful. If you would like more details about these provisions or any
other aspect of the new law, please do not hesitate to call.
Very truly yours,
Kevin A. Cameron,
Partner, CPA
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