New Hiring Incentives

During 2010 the Hiring Incentives to Restore Employment (HIRE) Act gives employers a financial incentive to hire new employees by combining forgiveness for employer paid Social Security taxes along with an additional tax credit if the new employee stays on the payroll for at least 52 weeks.

To be eligible the new employee must begin full or part0time employment from February 3,2010 through December 31, 2010.  The new employee must not have been employed more than 40 hours during the 60 days prior to his or her hire date.  In addition, the new employee cannot have displaced a current employee unless the prior employee voluntarily quit or was terminated for cause.

The new law exempts employers from having to pay the 6.2 percent employer’s portion of the Social Security reported on From 941.  The employee portion of the Social Security tax must still be deducted from the employee and reported as normal.

In addition to Social Security forgiveness the new law provides for a retained worker credit.  If the qualified new hire is employed for at least 52 consecutive weeks the employer will receive an additional tax credit equal to the lesser of $1,000 or 6.2 percent of the wages paid.  During the 52 week period the employee’s pay during the last 26 weeks must be equal to at lest 80 percent of the pay during the first 26 weeks.  The law excludes domestic workers and those eligible for the foreign earned income exclusion.

Many small business owners preparing their own Form 941s have overlooked taking these new tax benefits and should talk with their tax preparer to see how to get this corrected.