Tax Benefits of 2010 Hire Act Still in Effect

September 24, 2010

In order to spur the struggling economy, the federal government passed the Hiring Incentives to Restore Employment (HIRE) Act of 2010 this year. The goal of the HIRE Act was to provide incentives for employers to add new employees to their businesses, specifically, employees that were previously unemployed. With the unemployment rate gradually increasing, offering employers incentives to add new employees is even more important than when the HIRE Act was passed.

The HIRE Act predominantly encourages hiring new employees by creating tax benefits for employers that hire previously unemployed and certain part-time employees. The Act exempts employers from its share (6.2%) of social security taxes for hiring new employees that either did not work in the last 60 days or worked 40 hours or less in the last 60 days. In addition, if the employee is kept for one year (52 weeks) the employer can receive up to a $1,000 tax credit for the 2011 tax year. For example, an employee that has not worked since April 2010 who is hired on October 1, 2010 and retained until October 1, 2011 would create a $1,000 tax credit for the employer filing its taxes in 2012 for the 2011 fiscal year.

Both business and nonprofits are eligible for these tax benefits. In order to qualify the employee must sign an affidavit called a W-11. It is not required that the employer was aware of its eligibility for this benefit when the employee was hired, so long as the employee qualifies under the Act. In order to prevent employers from taking advantage of these benefits by firing current employees for qualified new ones, the employee must fill a new position or the prior position of an employee who left voluntarily or was fired for cause. Employers can claim the payroll tax benefit on the federal employment tax returns that are usually filed quarterly with the IRS. Eligible employers were able to claim this new incentive on their revised employment tax form for the second quarter of 2010.

For more information on the HIRE Act please visit the IRS website.