HIRE Act Provides Tax Breaks for Hiring Unemployed Workers

March 19, 2010

On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act (HIRE) into law, providing tax incentives for businesses hiring unemployed workers and extending deduction limits for small businesses that make capital improvements.

Key HIRE Act Tax Benefits

  • A 6.2 % payroll tax incentive for employers who hire unemployed workers this year (after Feb. 3, 2010, and before Jan. 1, 2011).
  • A $1,000 general business tax credit for each worker retained by the employer for at least one year.
  • Extending through 2010 the $250,000 deduction for small businesses that make capital improvements.
  • Expanded eligibility for Build America Bonds to cover other qualified tax credit bonds (see our alert “Jobs Bill Affecting Certain Qualified Tax Credit Bonds Passes Senate – President Expected to Sign”).
  • Extends surface transportation policy through Dec. 31, 2010.

The HIRE Act affects Federal Insurance Contribution Act (FICA) taxes. The employer’s share of FICA taxes is composed of two parts: (1) the old-age, survivors, and disability insurance (Social Security taxes) component, imposed at a rate of 6.2 %; and (2) the hospital insurance (Medicare/Medicaid) component, imposed at a rate of 1.45 %.

The 6.2 % payroll incentive under the HIRE Act effectively exempts employers from their share of Social Security taxes paid on qualifying employees from the date of enactment through the end of 2010. This provision is coordinated with the Work Opportunity Tax Credit (WOTC) to preclude the same wages from being eligible for both tax benefits.

The employer must receive a statement from each eligible new hire (domestic workers are excluded) certifying that he or she was unemployed during the 60 days before beginning work, or alternatively, worked less than a total of 40 hours for someone else during the 60-day period. In IR-2010-33, the IRS announced it is developing a form employees can use to make the required statement.

To pay for the tax benefits, the HIRE Act contains revenue raisers, including:

  • A 30 % withholding tax on payments made after 2012 to foreign financial institutions that do not agree to disclose to the IRS their U.S. account holders.
  • Reporting to IRS by qualified individuals holding any interest in a specified foreign financial asset.
  • Stricter rules for U.S. owners of foreign trusts.
  • Delaying through 2020 the worldwide interest allocation rules for corporations.
  • Increasing estimated payments for corporations with assets of $1 billion or more.

Before signing the HIRE Act, President Obama said, “A consensus is forming that, partly because of the necessary – and often unpopular – measures we took over the past year, our economy is now growing again, and we may soon be adding jobs instead of losing them. The jobs bill I’m signing today is intended to help accelerate that process.”

As with any legislation providing tax benefits to certain taxpayers, the revenue offsets will increase the tax exposure for other taxpayers. Taxpayers with foreign trusts and assets in foreign financial institutions will need to pay particular attention to the revenue raisers in the act.