Employer Tax Credits Under HIRE Act

The Hiring Incentives to Restore Employment Act (the "HIRE Act") was signed by President Obama on March 18, 2010.  The HIRE Act provides attractive tax incentives for businesses that hire unemployed workers. 

HIRE Act Tax Incentives

The HIRE Act provides the following tax incentives:

• Exemption from the employer's share of FICA/OASDI taxes (a 6.2 % payroll tax savings) for employers who hire unemployed workers after February 3, 2010, and before January 1, 2011; and
• A $1,000 general business tax credit for each employee who remains employed with the employer for at least one year.

FICA/OASDI Tax Exemption

The FICA/OASDI tax exemption is available for "Qualified Employers" including for-profit and non-profit employers, and public higher education institutions (such as universities). Other federal, state and local government employers and governmental instrumentalities are excluded from the FICA/OASDI tax exemption.

The FICA/OASDI tax exemption does not apply to the employer's Medicare/Medicaid taxes.  An employer's share of FICA taxes includes:  (a) the old-age, survivors, and disability insurance (OASDI taxes) taxes, currently 6.2%; and (b) the hospital insurance (Medicare/Medicaid) taxes, currently 1.45 %.  The HIRE Act only exempts the employer's share (not the employee's share) of the OASDI taxes (not the hospital insurance taxes).

The HIRE Act exempts employers from their share of Social Security taxes paid for Qualified Individuals from the date of enactment (March 18, 2010) through the end of 2010. This FICA/OASDI tax exemption will be coordinated with the Work Opportunity Tax Credit so that the same wages will not be eligible for both tax benefits.

The employer must receive a statement from each newly hired Qualified Individual certifying either that (i) the employee was unemployed during the 60 days before the date the employment begins, or (ii) the employee worked a total of 40 hours or less for other employers during that 60-day period.  The IRS has indicated that it will provide a form that employees can use to make the required statement.

A Qualified Individual is any employee who:

• Starts working for a Qualified Employer after February 3, 2010 and before January 1, 2011; and
• Was not hired to replace another employee, unless the other employee quit voluntarily or was terminated for cause; and
• Is not a family member as defined by Internal Revenue Code Section 51(i)

Business Tax Credit for Continued Employment of New Employees

If a Qualified Employer retains a Qualified Individual for at least 52 consecutive weeks, the employer is entitled to a one-time business tax credit under Code Section 38(b).  The employee must receive wages from the employer during the last 26 weeks of the continued employment period that are at least 80% of the wages received during the first 26 weeks of the continued employment period.

The Qualified Employer's tax credit is equal to the lesser of $1,000 or 6.2% of the wages paid to the Qualified Individual.  In order for the full $1,000 tax credit to apply, a Qualified Individual must receive more than $16,129.03 in pay.

The lawyers in our Employee Benefits Group are available to answer any questions you may have about these tax credits.

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If you have any questions about this Client Advisory, please contact any member of our Employee Benefits Team.

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