Insights

President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act into law March 18. The law provides tax incentives to employers that hire and retain previously unemployed workers. The HIRE Act has two main provisions that encourage employers to hire unemployed workers. The first provision is a payroll tax exemption. The second provision is a tax credit. All private employers are eligible for these tax incentives.

Social Security Tax Exemption   

Employers will be eligible for a Social Security tax exemption if they hire a new employee between February 3, 2010, and January 1, 2011, who (1) was previously unemployed and (2) does not replace another employee of the employer. Employers that qualify for this tax exemption are not required to remit their share (6.2 percent of the first $106,800 of wages) of the Social Security taxes for the new employees in 2010. To receive the exemption, a newly hired employee must sign an affidavit stating that he or she has not been employed for more than 40 hours during the preceding 60 days. The exemption has no cap or limit as to the total amount of tax benefits that can be claimed by an employer. 

Income Tax Credit

To encourage employers to retain these previously unemployed workers, the HIRE Act also provides a tax credit for each new worker who remains employed for at least 52 consecutive weeks. The tax credit is the lesser of $1,000 or 6.2 percent of the wages earned by the employee during the 52-week qualifying period. The new employee must be employed for the full 52 weeks to qualify for this credit (i.e., partial credits are not available). In addition, the worker's wages during the last 26 weeks must be equal to at least 80 percent of what he or she earned during the first 26 weeks.

The HIRE Act provides significant tax benefits for employers that hire previously unemployed workers. For more information on the HIRE Act, contact one of the Day Pitney LLP labor and employment attorneys.