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Tax Benefits from the HIRE Act

In March, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act, which provides a number of tax benefits. The benefits include a payroll tax holiday for hiring new workers who were previously out of work, a new general business credit of up to $1,000 per new employee hired, and an increase in the maximum Section 179 deduction allowed for 2010.

Not Just Any Holiday – A Payroll Tax Holiday
Employers hiring workers who were previously unemployed may qualify for a 6.2% payroll tax incentive in 2010. Under the payroll tax reimbursement provision of the HIRE Act, qualified employers are exempt from the employers’ share of Social Security taxes on qualified employee’s wages paid beginning on March 19, 2010 and ending on December 31, 2010.

Who Is a Qualified Employer?
A qualified employer is any employer other than the United States or any state or local government – i.e., private and not-for-profit businesses including higher-education public institutions.

Who Is a Qualified Employee?
A qualified employee is an individual who meets the following criteria:

• Begins working for a qualified employer after February 3, 2010 and before January 1, 2011
• Certifies by signed affidavit (Form W-11) that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment begins
• Isn’t employed to replace another employee unless the employee being replaced left voluntarily or for cause
• Is not a related party to the qualified employer

Where Is the Payroll Tax Holiday Computed?
The payroll tax holiday is taken into account on the quarterly payroll tax filings by the taxpayer. The payroll tax holiday doesn’t apply to wages paid in the first calendar quarter of 2010. The amount that would have qualified for a payroll tax holiday in the first quarter will be taken into account with the second-quarter payroll tax filing.

Can You Claim BOTH the Payroll Tax Holiday and Work Opportunity Credit for the Same Employee?
A qualified employer cannot take both the payroll tax holiday and Work Opportunity credit on the same qualified employee. The taxpayer will be treated as taking the payroll tax holiday unless the taxpayer elects out of such treatment.

New Hire = $1,000 Credit
The HIRE Act created a new general business credit for hiring and retaining qualified unemployed workers for tax years ending after March 18, 2010. This new credit is available to employers for up to $1,000 for each retained worker.

Who Is a Retained Worker?
A retained worker is an individual who meets the following qualifications:

• Hired by the taxpayer after February 3, 2010 and before January 1, 2011
• Meets the definition of a qualified employee as described above for the payroll tax holiday
• Continues to be employed by the taxpayer for a period not less than 52 consecutive weeks
• Receives wages during the last 26 weeks of the period equal to at least 80% of the wages for the first 26 weeks of the period

How Is the Credit Calculated?
The taxpayer’s general business credit will be increased by the lesser of:

• $1,000 per retained worker or
• 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period

If the total wages paid to the retained worker equal $16,129.03 or more, the allowable credit will be $1,000. This credit will be claimed on the 2011 tax return for calendar year taxpayers.

This general business credit will be used to offset tax for C-Corporations and will be passed through to the owners of S-Corporations, partnerships, and single-member LLCs. Any unused credit can be carried back one year but not to a tax year beginning before March 18, 2010, and then will carry forward with other general business credits for 20 years.

Another Year with $250,000 Section 179 Expense
Under Section 179, taxpayers can elect to expense the cost of qualified fixed assets placed in service during the year. Qualifying fixed assets are as follows:

• Depreciable tangible personal property (NEW or USED), including “off-the-shelf” computer software
• Acquired by purchase
• Used in the active trade or business

The HIRE Act increases the dollar limitation on the Section 179 deduction to $250,000 for property placed in service for the taxable year beginning in 2010. The $250,000 limitation is reduced by the amount by which the cost of Section 179 property placed in service during the tax year beginning in 2010 exceeds $800,000. Additionally, there are income limitations that could reduce or eliminate these benefits.

Questions on the Hiring Incentives to Restore Employment Act of 2009? Contact Cara Hoffman at 312-980-3274, Michael Calahan at 312-980-2996, Kristen Baehl at 312-980-3238, or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.