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The Hiring Incentives to Restore Employment (HIRE) Act

Signed into law today, the Hiring Incentives to Restore Employment (HIRE) Act creates a payroll tax exemption for new hires plus a tax credit for retaining new employees, and extends I.R.C. Section 179 increased expensing limits.

 

Payroll tax exemption— Qualified employers (generally, any employer other than the federal, state, or local government) that pay wages after March 18, 2010, and before January 1, 2011, to qualified individuals are exempt from the Old Age, Survivors and Disability Insurance, or “OASDI” portion (i.e., the Social Security portion) of the FICA employment tax with respect to qualified individuals. Basically, a qualifying individual is an employee who:

  1. Begins employment after February 3, 2010, and before January 1, 2011.
  2. Certifies that he or she has not been employed for more than 40 hours during the 60-day period ending on his or her date of hire.
  3. Is not hired to replace another employee, unless the other employee separated voluntarily, or was terminated for cause.
  4. Is not related to the employer.

For wages paid prior to April 1, 2010, the exemption comes in the form of a second quarter credit. That is, wages paid prior to April 1 that would otherwise qualify for the exemption are subject to regular payroll tax rules. However, the amount by which an employer’s payroll tax would have been reduced under this provision will be treated as a payment against tax in the second quarter of 2010.

Tax credit for retaining new hires– For tax years ending after March 18, 2010, a business tax credit will be allowed for each qualified individual (i.e., an individual hired after February 3, 2010, and before January 1, 2011, and who otherwise meets the requirements for the payroll tax provision described above) who:

  1. Was employed on any date during the year,
  2. Was employed for a period of not less than 52 consecutive weeks, and
  3. Has wages during the last 26 weeks of the 52-week period that equal at least 80 percent of his or her wages during the first 26 weeks of the 52-week period.

The credit is equal to the lesser of $1,000 or 6.2% of wages paid to the worker during the 52 consecutive weeks of employment, and is allowed for each employee in the taxable year in which the 52 consecutive week period is first satisfied.

IRC Section 179 expensing–The Act also extends 2009 limits that applied to I.R.C. Section 179 expensing to taxable years beginning in 2010. As in 2009, the maximum amount that a taxpayer may expense is $250,000 of the cost of qualifying property placed in service for the taxable year. This amount is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000.

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