Hiring incentives signed into law

NEW HIRE ACT PROVISIONS

On March 17, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act (HIRE), an economic stimulus plan that contains $15 billion dollars in new incentives for businesses which hire unemployed workers in 2010.

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, in effect exempting the Employer from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no 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.

Here’s how it works:

Beginning for any new hire wages paid after April 1, an employer is not liable for the 6.2% OASDI (Social Security) tax on the wages. They continue to be liable for the 1.45% Medicare tax and must withhold the employee’s share of both taxes (7.65%).

For the 6.2 % OASDI tax on wages paid to new hires between March 19 (the effective date of the new law) and April 1, the employer can take a credit against their payroll tax liability for their first deposit of the 2nd quarter of 2010.

New hires filling existing positions 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 requires that the employer get a statement from each eligible new hire certifying that he or 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. The IRS is currently developing a form employees can use to make the required statement.

In addition, for each worker retained for at least a 52 weeks, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.