Tax Incentive HIRE Act

I mentioned this in another thread regarding hiring in hopes that PMQ gives the subject some publicity, but I feel it deserves its own thread to draw more attention to it. My accountant brought this to my attention yesterday and after a bit of research it looks like something that can save me more than a few thousand dollars. I will preface this with the disclaimer that I am FAR from a tax professional and am only suggesting that you bring this info to the attention of your CPA or payroll company.

The Hiring Incentives to Restore Employment (HIRE) Act looks to have been enacted with the intentions of lowering the unemployment rate. In a nutshell, if you hire someone that has worked less than 40 hours in the last 60 days, you could be exempt from paying the matching 6.2% of their social security tax from the hire date till the end of 2010. To sweeten the pot, if the employee works for you for 52 weeks, you will be rewarded with a tax credit of an additional 6.2% of his payroll up to $1000. Of course, this is the IRS so nothing is quite that easy. There are a few other qualifications the main one being that the new employee can not be hired to replace someone that didn’t either quit or was terminated with cause. You can find plenty of info on this by doing a google search of HIRE Act tax credits. I am also including a link to an IRS site that describes this in detail and includes links to FAQs. If you are like most pizza shops that endure high turnover rates, do yourself a favor and look into this.

http://www.irs.gov/newsroom/article/0, … 26,00.html

My payroll company just sent me a bunch of paperwork regarding this, but I’m still a bit confused by it all so I think I need to make contact with an expert. I’ll probably lose 3 employees this summer due to attrition, and will most likely hire them with fresh kids seeking their first jobs so this could be a lot of money for me.

Paul, do you know if you still pay the 6.2% match and then receive a tax credit, or are we exempt from it on payday? A tax credit is one thing, but not having to pay it on payday would be a nice little cash flow help.

On a side note, does anybody else think this will pretty up the unemployment rate but not create any actual jobs?

I really don’t think this will create many jobs. I purposely decided to keep my political views out of it so that I can spread the word without getting into arguments here and on other message boards.

As far as the cash flow/ tax credits, I believe the first 6.2% does not get paid on your 941’s. It’s the second 6.2% up to $1000 that you are due if the employee works for you for 52 weeks that will come off the income taxes. I believe this is true because one of the links that I was reading was talking about making sure your payroll software was up to date and able to handle this incentive.

Here’s a link to a draft version of the new 941 form for the 2nd through 4th quarter 2010. The lines 6A, 6B, 6C, 6D and 12D are additional to the 941 used for the first quarter 2010 and relate to the above mentioned tax incentive. So yes, you will save as you go as opposed to getting the money back at the end.

Here’s a question that needs to be answered though. What about businesses that use an employee leasing company? Do they get left out of this? Most leasing companies charge base wages times a set percentage to cover matching taxes, workers comp ect. How will this be affected? It doesn’t affect me but does affect most of the stores in our company.

http://www.irs.gov/pub/irs-dft/f941–dft.pdf

My guess about the employee leasing question is that it would behove you to get in touch with them NOW and let them know you fully expect a pass-through of this savings where appropriate.