Your Business may Benefit from the HIRE Act

In its latest effort to stimulate the economy and encourage employment, Congress passed the Hiring Incentives to Restore Employment Act ("HIRE” Act; HR 2847), which President Obama signed into law on March 18, 2010. HIRE provides a limited payroll tax "holiday" for certain employers hiring new workers, business tax credits for retaining such workers and other provisions designed to further stimulate the economy and offset the cost of such stimulus.

Details on the HIRE Act (HR 2847):

Employers who hire unemployed workers this year (after February 3, 2010 and before January 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them 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.

Please note these provisions:

• Employers cannot replace employees with these new hires unless the employees have left employment voluntarily or for cause. Family members and other relatives do not qualify.
• For each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns. (These employees must be employed for at least 52 consecutive weeks and earn wages during the last 26 weeks of such period equal to at least 80 percent of wages paid during the first 26 weeks.)
• The 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 less 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.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.

Additional benefit:

There is another provision that may be much more beneficial to business owners. That is, Congress is going to extend the Section 179 deduction for equipment expenses. The amount will remain at $250,000. Basically, this means that if you buy equipment, you can get a deduction for the first year instead of using depreciation (which means taking expenses over three or more years). No doubt, this can be a big benefit as business owners try to boost their cash flows.

Coming up:

The jobs issue will again be addressed when Members of Congress return from their Spring Recess on April 12. The House will review a $140 billion package passed by the Senate last week that will extend a number of business tax breaks and extend the COBRA employer contribution benefit for downsized employees. It is expected that the COBRA benefit will be extended for the rest of 2010. So, clubs that have former employees who receive the benefit now will have to continue that benefit for the next nine months.

Learn more:

The IRS has established FAQs for the HIRE Act - Payroll Tax Exemption for Hiring Unemployed Workers and the Business Credit for Retention of Certain Newly Hired Individuals in 2010. In addition, clubs can download the newly-released W-11, Employee Affidavit.

Qualified Employers

The Act limits such tax holidays to "Qualified Employers." Qualified Employers are private sector employers (both for profit and non-profit), as well as public higher education institutions (i.e., universities). Other federal, state and local government employers and governmental instrumentalities are excluded. Consequently, it appears that a non-profit that is also considered a government instrumentality will be able to take advantage of HIRE's provisions.

The Act provides for automatic coverage unless an otherwise Qualified Employer opts out. The Internal Revenue Service (IRS) will develop a form for opting out. Participating Qualified Employers will not be eligible to concurrently receive WOTCs on wages paid to an otherwise "Qualified Employee" during a one-year period beginning on the employee's hiring date. WOTC4 provides private sector employers hiring workers from 12 targeted groups (e.g., veterans, disconnected youth) a federal tax credit of up to $10,000 per employee. While WOTC requires state agency certification and is often hard to qualify for, if an employee does qualify, the employer is likely to receive more generous credits then HIRE provides, particularly for its low-wage employees.

Covered Employees

The Act limits the tax holiday to certain Qualified Employees who:

1. Begin work for a Qualified Employer after February 3, 2010 and before January 1, 2011;
2. Provide the employer with a signed affidavit attesting, under penalty of perjury, that the individual was employed a total of 40 hours or less during the previous 60-day period ending when employment starts;
3. Were not hired to replace another employee, unless such employee voluntarily quit or was terminated for cause; and
4. Are not a family member as defined by Internal Revenue Code ("Code") section 51(i).5

The work performed by such new hires must be in an employer's trade or business or in the case of a non-profit, in furtherance of activities related to the purpose or function of that IRC 501(a) organization.

Checklists for Considering Tax Benefits of HIRE

The first step to evaluating the Act and deciding whether to pursue hiring under the Act, is to designate someone to coordinate a review of the law and assemble a team including representatives of HR, benefits, payroll and corporate tax to consider its obligations and benefits.

Any employer evaluating whether to use the credits available under HIRE should initially consider the following steps:

1. Determine if the employer is "qualified;"
2. Identify potential positions that are ready to fill;
3. Evaluate the overall cost of employment vs. the tax benefits provided by the Act and/or WOTC, if it is an option;
4. Consider prioritizing hiring objectives to identify positions ready to be filled, the availability of qualified candidates, the speed with which the recruiting and hiring process can be completed and the employer's long-term business needs;
5. Observe all existing state and federal antidiscrimination laws when making any hiring decisions.

When filling any position, the employer should:

1. As to each prospective employee, consider whether the tax benefits of HIRE outweigh the benefits of WOTC;
2. If WOTC qualified, consider formally electing out of HIRE for such employee;
3. Alert payroll department (and any payroll service provider) when a Qualified Employee is hired;
4. Create and retain HIRE specific records that document each Qualified Employee's date of employment and 52-week mark for use in establishing Business Credit eligibility;
5. Alert payroll department regarding any Qualified Employees hired after February 3, 2010 and before April 1, 2010, so appropriate OASDI credit can be taken in the second quarter for first quarter employer-paid OASDI;
6. Advise corporate tax department (or other corporate tax preparers) when a Qualified Employee meets the 52-week service requirement, so the appropriate credit can be calculated and taken;
7. When evaluating continued employment of a Qualified Employee under HIRE, retention decisions should be secondary to employment law compliance considerations.

The NGCOA will continue to monitor the progress of this legislation and keep its members posted.

As outcomes become more clearly defined, we will also provide information and education on the ramifications of this bill and how your facility can best adjust to these impending changes.