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HIRE - Congress Passes Jobs Creation Incentives

This past Thursday, President Obama signed the HIRE (Hiring Incentives to Restore Employment) Act into law, which contains two key provisions to incentivize employers to hire and retain workers. 

Payroll Tax Holiday
To help stimulate the hiring of workers, a private sector employer that hires a worker who has been unemployed for at least 60 days will be exempt from having to pay the employer's 6.2% FICA tax for the balance of this year.  This provision applies to qualifying employees hired after February 3, 2010, and to wages paid to that worker after March 18, 2010 through the end of this year.  Thus, an employer could save up to $6,621 per new employee hired this year.

This is an immediate tax break since the FICA tax is simply not collected in the first place.  New employees who replace another employee or are family members of the employer generally do not qualify for this tax break.

In addition to private sector employers, new hires made by nonprofit organizations and public higher education institutions also qualify for the FICA tax holiday.

$1,000 Tax Credit for Retaining Employees
In addition to the FICA tax holiday, an employer is eligible for an additional $1,000 tax credit for both hiring and retaining new employees.  This provision also applies to new employees hired after February 3, 2010.  In order to qualify for the credit, the employee must be on payroll for a continuous 52-week period, and the wages during the second 26-week period must be at least 80% of the wages paid during the first 26-week period.

Once the 52-week threshold is met, the employer can claim the tax credit when they file their 2011 income tax return.  The actual amount of the credit is the lesser of $1,000 or 6.2% of the wages paid to the employee during the 52-week measurement period.

The applicability of these two new provisions is extremely broad.  There is no minimum weekly number of hours that the new employee must work to be eligible, nor is there a cap on the amount of payroll tax savings or tax credits that an employer can qualify for.  Further, there is no bias based on salary level.  An employer can save 6.2% on a worker who earns $10,000, as well as a worker who earns $100,000.

Finally, the HIRE Act reinstated the Section 179 annual expensing limit to $250,000, which also applied for 2008 and 2009.  The limit for this year had dropped to $134,000 until overridden by the provisions in the HIRE Act.  After this year, the annual expensing limit is scheduled to drop to only $25,000.

It would not be a stretch to tie the quick passage of the HIRE Act to the election of Senator Scott Brown from Massachusetts.  That event triggered a wake-up call for our legislators to focus on job creation and preservation.

Throughout this tax season, we've been asking our business clients "how's it going" and we are encouraged by what they have told us.  Certainly, their optimism is not universally shared in all sectors, but it is certainly an improvement to what we heard just twelve months ago.  In a nutshell, we remain cautiously optimistic, fiscally conservative and client-focused.  Some things just never need to change.

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