Could Your Company Benefit by Hiring Unemployed Workers?

Chad Bice | August 23rd, 2010

The U.S. Department of the Treasury estimates that, between February and May, businesses hired 4.5 million workers who had previously been unemployed for eight weeks or longer. As a result, those businesses are eligible to receive part of up to $8.5 billion in tax exemptions and credits through the Hiring Incentives to Restore Employment Act, known as the HIRE Act.

Signed by President Obama in March, the HIRE Act provides a payroll tax holiday for employers who hire qualified workers who were unemployed or worked less than 40 hours a week during the last 60 days. The act exempts businesses from paying the employer’s 6.2 percent share of Social Security payroll taxes for the remainder of the year. The benefit began with new hires added to payrolls after February 3, 2010, and applies to wages paid after March 18, 2010, and through December 31, 2010.

Does your business qualify? Here are some of the requirements:

  • Private sector jobs. The tax benefit generally applies only to private sector employment, including nonprofit organizations. Public sector jobs are generally not eligible except for employment by a higher education institution.
  • No minimum hours. There is no minimum weekly number of hours that the new employee must work for the employer to be eligible. However, the holiday is capped at the current maximum for the OASDI portion of the FICA tax, or $6,622 for 2010 (6.2 percent x 106,800).
  • Family, replacement jobs don’t count. Employers can’t claim the tax break for hiring family members or for workers who replace other employees who performed the same job, unless the prior employees left voluntarily or for cause.
  • Employee verification. New hires must sign an affidavit, under penalties of perjury, stating they haven’t been employed for more than 40 hours a week during the 60-day period ending on the date the employment starts.
  • Must choose HIRE or WOTC credit. For workers who would otherwise be eligible for the Work Opportunity Tax Credit, which is another type of employment tax credit, the employer must elect out of the payroll tax holiday if they want to claim the WOTC. (Generally the WOTC provides a larger credit amount). There is no double-dipping.

In addition to the employer’s Social Security payroll tax exemption, the businesses can also receive a tax credit up to $1,000 for each newly hired qualifying worker who is retained for 52 consecutive weeks. The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2 percent of the wages paid by the employer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker’s wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn’t available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).

Senator Charles Schumer (D-NY) has proposed extending the HIRE Act through June 30, 2011. He was one of the original sponsors of the HIRE Act along with Sen. Orrin Hatch (R-Utah).

The IRS produced a list of frequently asked questions regarding the HIRE Act. View it here.

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