Business Changes in HIRE Act

This is an overview of two key tax changes affecting business in the recently enacted “Hiring Incentives to Restore Employment Act of 2010” (the HIRE Act, P.L. 111-147 ). The centerpiece of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers which gives business a maximum tax benefit of $7,621 in paying an unemployed worker $106,800 per year. The act also creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes. In addition the HIRE Act includes a one-year extension of the enhanced small business expensing option under Code Sec. 179.

Payroll tax holiday for employers who hire unemployed workers.
The new law exempts private-sector employers from the 6.2% OASDI tax per new hire 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 the OASDI. The qualifications are:
(1) The new hire must have been unemployed for at least 60 days before employment
(2) Applies to workers hired after February 3, 2010 [Date of introduction of the legislation]
(3) A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
(4) Applies to wages paid from March 19, 2010 to on December 31, 2010
(5) 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 qualifies.
(6) Hiring family members do not quality.
(7) An employer cannot claim both the HIRE act provisions and the Work Opportunity Tax Credit or another type of employment tax credit. The employer must select one benefit or the other for 2010. There is no double dipping.
(8) There is no minimum weekly number of hours that the new employee must work for the employer to be eligible.

Credit for employers who retain new workers
An employer is eligible for an additional non-refundable tax credit of the lesser of $1,000 or 6.2% of the wages paid after a 52-week threshold is reached. This is taken on the employer’s 2011 tax return. In order to be eligible:
(1) All of the qualifications listed above must be meet, AND
(2) The employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

Changes to tax forms
Per Thomson Reuters/RIA, the IRS explained changes to tax forms in an April 1 payroll industry teleconference call as follows:
(1) Form 941. IRS will be revising the second quarter Form 941, Employer's Quarterly Federal Tax Return, due on Aug. 2, 2010. It expects to finalize the new version on April 6. The electronic specifications for the form will be revised at a later date. A draft version of the form included a new line to report tip adjustments. That line will not be included in the final version of the form. IRS expects to include the tip adjustment line on the 2011 Form 941.
(2) New Form W-11. An employer may not claim the payroll tax exemption unless the new hire certifies by signed affidavit (under penalties of perjury) that he was employed for a total of 40 hours or less during the 60-day period ending on the date the employment begins. IRS has drafted Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, to help employers meet this requirement. It expects to finalize this form the week of Apr. 5. The form does not need to be notarized. IRS expects employees to be able to sign the form electronically at some point.
(3) Form W-2/W-3. There will be a new code on box 12 of the 2010 Form W-2 (Code CC) to indicate that a new hire had wages that qualified for the payroll tax exemption. Form W-3, Transmittal of Wage and Tax Statements, will be revised to include a line for total aggregate exempt wages.

Extension of enhanced small business expensing.
The new law also gives a one-year lease on life to enhanced expensing rules. 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. Had the HIRE Recovery Act not been passed and signed into law, these dollar limits would have dropped this year to $134,000 and $530,000 respectively.

If you have any questions on how this applies to your business, please call the office of The John Ellis Company.