The IRS has issued a News Release explaining the new tax benefits that were part of the Hiring Incentives to Restore Employment (“HIRE”) Act. For each worker retained for at least one year, the employer will be entitled to a general business credit of up to $1,000 on its 2011 income tax return, as well as relief from certain employment taxes. These benefits are available to employers who hire and retain certain unemployed workers after Feb. 3, 2010 and before Jan. 1, 2011.
These credits are specifically targeted to help businesses create new positions that will allow them to hire those who are unemployed. If a new hire fills an existing position, the prior employee must have left voluntarily or for cause in order for the employer to qualify for the HIRE Act credits. These credits will be available to a wide variety of employers, including businesses, agricultural employers, tax-exempt organizations, and public colleges and universities. However, household employers cannot claim these benefits. To be eligible, an employee must have been unemployed for at least 60 days, or must have worked less than 40 hours for someone else during such 60-day period, and the employer must obtain a statement certifying this prior period of unemployment from the employee.
Hiring employers will be exempt from paying the employer’s share of Social Security taxes on wages paid to these qualifying workers after the date of enactment, although the employer must still pay its share of Medicare taxes on these wages. Employers must also withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes and Medicare taxes on these wages. These employment tax benefits will be claimed on an employer’s federal employment tax return, most of which are filed on a quarterly basis.
*This post was written by guest blogger Jennifer R. Noel. Jenn is an associate in Young Conaway’s Tax, Trusts & Estates Section, where she advises clients with respect to local, state, federal, and international tax issues, the legal aspects of the formation and operation of small and emerging growth business enterprises, and the preparation and negotiation of commercial contracts.