HIRE Act Tax Incentives for Employers

The IRS introduced two new tax benefits that are available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act.

Employers who hire unemployed workers this year, after Feb. 3, 2010 and before Jan. 1, 2011, qualify for a 6.2 percent payroll tax incentive, exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will not have an effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2 percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

For each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The Internal Revenue Services projects that these two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify. The new law also requires that the employer get a statement from each eligible new hire certifying that he/ she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period.

Additional information on all that qualify to claim the payroll tax benefit in addition to revised forms and further details on these two new tax provisions will be posted on IRS.gov web site during the next few weeks.