Tax Advisor - President Obama Signs Hiring Incentives Act with Tax Provisions

Late last week, President Barack Obama signed the Hiring Incentives to Restore Employment (HIRE) Act. The act contains several tax items intended to free up funds for employers to hire individuals who have been out of work to fill new jobs and further stimulate the recovering economy.

Below we summarize the parts of the bill that most directly affect our friends and clients.

  • Payroll tax holiday and tax credit for privately owned companies and nonprofit organizations. The HIRE Act exempts employers from paying their share of Social Security employment taxes on wages paid in 2010 to newly hired, qualified unemployed workers. To qualify, these are workers who (1) have been unemployed for at least 60 days (2) are not replacement hires and (3) were hired between Feb. 3, 2010 and Jan. 1, 2011. As an added incentive, the bill also provides a credit of up to $1,000 for employers who retain such employees for at least 52 weeks.

    Here are some additional features of the new hiring incentive:

    • The tax benefit is immediate, putting money into a business’ cash flow.
    • Public companies are generally not eligible for either benefit, although public higher education institutions are.
    • There is no minimum weekly number of hours the new employee must work and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven.
    • For workers eligible for the “Work Opportunity Tax Credit,” the employer must choose one benefit or the other for 2010.
    • Employers cannot claim the tax break for hiring family members.
    • A worker who replaces another employee who performed the same job is not eligible for the benefit unless the prior employee left the job voluntarily or for cause.
    • For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
    • The incentive is not biased toward low-wage or high-wage workers.  Under the measure, a business saves 6.2 percent on both a $40,000 worker and a $90,000 worker.

  • Extension of enhanced small business expensing (Section 179). The HIRE Act extends the increased section 179 deduction through 2010. This amount had been increased to $250,000 by the American Recovery and Reinvestment Act.

  • Direct payment option for certain tax credit bonds. Issuers of qualified school construction, zone academy, renewable energy and conservation bonds can elect to receive a direct payment from the federal government equal to the credit they would otherwise receive.

  • Foreign Tax Compliance Act. Requires foreign entities to provide withholding agents with the name, address and tax identification number of any U.S. individual who is an account holder or qualified substantial owner of the foreign entity. Certain foreign corporations, including publicly held corporations, are exempt from the reporting requirement.

Revenue offsets

To pay for the tax incentives, the act further delays the worldwide interest allocation through 2020. This is a liberalized rule for allocating interest expense between U.S. sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation.

 

For more information about these provisions or any other aspect of the new law, please contact:
Mike Hydell, CPA, M.Tax
Tax Manager
330.255.2456
Email

For more details on the significant impact the HIRE Act will have on payroll processing, depositing and reporting, please contact:
Denise Buccigross
Supervisor
330.255-2463
Email