New HIRE Act
President Obama recently signed into law the Hiring Incentives to Restore Employment (HIRE) Act. This new law provides for three major changes for businesess in 2010 and 2011. In 2010 the law extended the rapid write-off rules for equipment purchased through the end of 2010. This allows small businesses to write off up to $250,000 of equipment purchased during 2010, rather than depreciating them over the normal 5-7 years.
To encourage the hiring of workers by the private sector, the HIRE Act also passed a new employer FICA tax holiday for new employees hired after February 3, 2010 who had not worked more than 40 hours in the 60 days prior to hiring. For those employees, any wages paid after March 18, 2010 are exempt from the employer’s matching FICA tax of 6.2% through the end of the year if the employee signs an affidavit regarding their limited work prior to hiring. The FICA tax exemption is available on the first $106,800 of wages paid to each qualified employee during 2010, and is available for both full and part-time employees. That’s a savings of up to $6,621 for employees that earn the maximum wages subject to Social Security tax ($106,800).
In 2011 any new FICA exempt employees who were hired in 2010 and who are still with the company after 1 year and still earning at least 80% of 2010’s wages will also qualify for a $1,000 per employee tax credit. Family members, owners and a few other employees are not qualified for the FICA exemption or the New Hire credit.
Guidelines for the Credit
- The employee must have been hired after February 3, 2010 and before January 1, 2011.
- The credit applies only on the wages paid after March 18, 2010.
- The employee must have worked fewer than 40 hours during the 60 days prior to beginning work, and must sign a statement to that effect.
- The employee must be an additional hire, or if the employee is a replacement, it must be replacing a voluntary termination or an employee that was terminated for cause.
- The employee must not be related to the qualified employer or anyone owning 50% or more of the stock or other capital of the employer.
How to Claim the Credit
- The FICA tax exemption can be claimed on the three remaining 941 Employer’s Quarterly Federal Tax Returns for 2010. Any credit attributable to the first quarter can be taken on the second quarter return.(Click on the following for more information: Form 941 & Form 941 Instructions).
- The employer is responsible to save a completed employee affidavit, Form W-11, verifying eligibility.
New Hire Forms
The following forms are needed for each new hire:
Additional Resources
For additonal infomation, please click on the following links:
(Information courtesy of Jennings Advisory Group LLC & Taxspeaker.com, Thomson Reuters, and IRS.gov)
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