On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act of 2010 (the "HIRE Act"). The HIRE Act offers potential tax incentives and benefits to certain employers.
The HIRE Act offers tax incentives to encourage private sector employers to hire new employees. The HIRE Act exempts certain private-sector employers that hire an employee who has been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security (FICA) payroll tax on that employee for the remainder of 2010. Under the HIRE Act, an employer 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 Social Security taxes) by the end of 2010. As an additional incentive, for any qualifying employee hired under the HIRE Act that the employer keeps on its payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on the employer's 2011 federal income tax return. To be eligible for this tax credit, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period. Employees hired after the date of introduction of the HIRE Act (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of the enactment receive the exemption from payroll taxes. For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than a total of 40 hours during the 60-day period ending on the date the employment begins.
The HIRE Act extends the enhanced small business expensing under Section 179 of the Internal Revenue Code of 1986. The enhanced expensing rules allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation. 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 in effect for 2008 and 2009.
The HIRE Act establishes a direct payment option for certain tax credit bonds. State and local governments may issue special purpose tax credit bonds for school construction, renewable energy, and energy conservation. The federal government subsidizes these tax credit bonds by providing investors in these bonds with a federal tax credit in place of interest that would otherwise be payable on the bond. In lieu of providing investors with federal tax credits, the HIRE Act allows issuers of qualified school construction bonds, qualified zone academy bonds, clean renewable energy bonds (CREBs), and qualified energy conservation bonds to elect to receive a direct payment from the federal government equal to the amount of the federal tax credit that would otherwise be provided for these bonds.
Fraser Stryker is a leader in tax, corporate finance, and renewable energy law. For additional questions on the HIRE Act, please contact P. Brian Bartels or a member of the Firm's Taxation or Business & Corporate Practice Groups.
This article is provided by Fraser Stryker for general informational purposes and is not intended to be and should not be construed as legal advice on any specific facts or circumstances.
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