Are You Taking Advantage of the HIRE Act?
The Hiring Incentives to Restore Employment Act (HIRE Act) creates two different tax incentives for private-sector employers who hire certain previously unemployed workers:
1. Social Security Tax “Holiday”
Employers are exempt from paying the 6.2% employer share of FICA (Social Security) taxes on wages paid to “qualified individuals” (see below for definition) during the time period from March 19, 2010 through December 31, 2010. Employees are still expected to pay their share of these taxes, and both employers and employees are still required to pay their share of Medicare taxes.
2. Bonus for Retaining Employees
Employers are also eligible for a separate business tax credit of up to $1,000 if a qualified individual remains employed for at least 52 consecutive weeks and is paid wages for the last 26 weeks of the 52-week period in an amount that is at least 80% of the wages paid during the first 26 weeks of the 52-week period.
Under the HIRE Act, a “qualified individual” is a newly hired employee that meets all of the following conditions:
• Begins employment after February 3, 2010 and before January 1, 2011.
• Is not hired to replace another employee (unless that former employee voluntarily quit or was fired for cause (including “downsizing”)).
• Is not a relative of the qualified employer or anyone owning 50% or more of the stock or other capital of the employer.
• Certifies, by signed affidavit, under penalty of perjury, that he or she was not employed for more than 40 hours during the 60-day period prior to the beginning of employment. The IRS Form W-11 Employee Affidavit is available at http://www.irs.gov/pub/irs-pdf/fw11.pdf, but employers can use a substantially similar form if they prefer.
According to the IRS, some classifications of employees that may meet these eligibility requirements are (1) recent college and high school graduates, (2) paid summer interns, and (3) individuals previously laid off due to lack of work who are rehired when work resumes.
As the tax advantages under the HIRE Act can be significant for employers (and are only available to employers for a limited period of time), it is recommended that employers analyze their recent and future hires to determine if they qualify for any tax incentives under the HIRE Act.