August 15 , 2010 - My small business is growing quickly, and I am looking to hire more employees. How do I qualify for the new employer tax breaks?

The Hiring Incentives to Restore Employment (HIRE) Act contained two valuable incentives for employers that boost payroll this year: a payroll (FICA) tax holiday for employers that hire unemployed workers; and an up-to-$1,000 tax credit for keeping the new hires on the payroll for at least one year. The benefits apply to wages beginning March 19, 2010 for workers hired after February 3, 2010 and before 2011.

If an employer hires a worker who had been unemployed for at least 60 days prior, the employer is exempt from having to pay their share of Social Security tax (6.2% of wages) for the remainder of 2010. To qualify, the new hire must sign an affidavit saying they have not been employed more than 40 hours during the 60-day period ending on the date employment. The payroll tax exemption is claimed on the employer's quarterly payroll tax return.

The New Hire Retention Credit applies to a retained worker. A retained worker is a new hire who (1) is employed be the taxpayer during the year, (2) is employed by the taxpayer for 52 consecutive weeks, and (3) had wages for that employment during the last 26 weeks equal to at least 80 % of the wages paid in the first 26 weeks. The New Hire Retention Credit is a non-refundable credit of the lesser of $1,000 or 6.2% of the worker's wages. This credit is claimed on the employer's 2011 income tax return.

The following guidelines apply to the HIRE Act benefits:
• The Act applies only for private-sector employment and includes nonprofit organizations, and public higher education institutions.
• Wages for hired family members cannot be included.
• There is no minimum number of weekly hours that the new hire must work.
• A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit unless the prior employee left the job voluntarily or was let go for cause.
• The exemption and credit cannot be claimed in addition to the Work Opportunity Tax Credit. An election can be made choosing the provisions under the HIRE Act or Work Opportunity Tax Credit on an employee-by-employee basis.
• A rehired employee may be a qualified individual if, based on the facts and circumstances, the employer- employee relationship is reestablished at least 60 days after the initial termination. This includes an employee who was originally terminated as a part of a reduction in workforce. (The individual will not be qualified if terminated with the intent to rehire in 60 days to claim the credit - the termination must be an actual termination of employment.)
• The Social Security tax is 12.4% of wages up to $106,800 for 2010. The tax is shared equally by employer and employee with 6.2% withheld from employee wages and 6.2% paid by the employer. The HIRE Act payroll tax exemption applies only to the employer's portion of the social security tax.

Just as a note, the Treasury Department says that an estimated $6.2 billion in payroll tax savings could be generated by the payroll tax exemption for workers hired through June, with another $4.2 billion to be saved through the retention credit if three-quarters of the new hires are employed for 52 weeks.

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