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In March, Congress passed the HIRE (Hiring Incentives to Restore Employment) Act of 2010.
Under this law, an employer who hires an employee after February 3, 2010, and before January 1, 2011, can receive a tax credit equal to the employer’s portion of the Social Security tax.All employers, with the exception of government employers, are eligible for this tax credit.Public institutions of higher education are the only government institutions that are eligible for the tax credit.
Hiring incentives – The HIRE Act provides qualified employers with temporary payroll tax forgiveness of the employer’s 6.2 percent share of Social Security payroll taxes on wages paid to new hires who had been previously unemployed.
Note that this holiday does not apply to the employee’s 6.2% Social Security withholding. Also note that the holiday does not apply to the 1.45% Medicare tax. Since the maximum Social Security base in 2010 is $106,800, the maximum value of the holiday is $6,621.60 (the “$6,000 credit” generally reported in the press.
Also note that the holiday does not apply to the first quarter of 2010. Instead, the credit that would have been allowed between Feb. 3 and Mar. 31, 2010 will be allowed on the employer’s 2nd quarter Form 941. This allows time for the IRS to issue guidance to employers and payroll companies as to how to report the credit.
Lastly, an employer can elect out of the payroll holiday if the WOTC would provide a greater benefit to the employer.
Retained worker credit – A general business credit of up to $1,000, which cannot be applied against an employer’s payroll tax liability, will be allowed for any employer of a “retained employee.” A retained employee is one who:
The credit is 6.2% of wages with a maximum of $1,000 per employee. If an employee earned more than $16,129.03 during the 52 weeks noted above, the credit is $1,000. Since the 52 week requirement cannot be met before Feb. 2, 2011, the first year the credit will be available is 2011. Any such credit cannot be carried back further than 2010 (the year of enactment).
Expensing extension – The limit for expensing of tangible property acquired during the year has been $250,000 since 2008 but was scheduled to reduce to $25,000 on Jan. 1, 2010. This tax bill extends the higher limit for tax years beginning in 2010 subject to the same phase-out if acquisitions exceed $1,050,000.
To download the full text of the regulations click here.
Sources: Washington Watch and Congress.org
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