On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act. The 2010 HIRE Act provides tax incentives to the employer for hiring and retaining certain unemployed workers. Below is a summary of the eligibility requirements for this incentive:

Payroll Tax Forgiveness – The 6.2% OASDI Social Security tax liability is lifted for “qualified employees” for any 2010 period starting after the enactment of the legislation (3/18/10).

• Maximum Amount – 6.2% of the employer-paid FICA wage up to the wage cap of $106,800. There is no maximum on the dollar amount of payroll taxes per employer that may be forgiven
• Qualified Employee Limitations:
  • Must start work after 2/3/10 and before 1/1/11.
  • Must not have been employed for more than 40 hours during the 60 days prior to his/her start date. The new employee must sign an Affidavit under penalties for perjury stating this.
  • Must not replace a current employee (unless that employee was separated from employment voluntarily or for cause)
  • Must not be related to the employer or directly, or indirectly, own more than 50% of the business
  • There is no minimum weekly number of hours that the new employee must work for the employer. They may be part time or full time employees.
  • For employees otherwise eligible for the “Work Opportunity Tax Credit”, the employer must select one benefit or the other (WOTC tax credit or HIRE tax credit)
• Application – the payroll tax forgiveness does not apply to wages paid in the first quarter of 2010. However, any amount that would have been allowed in the first quarter (i.e., wages on or after 3/18/10) would be credited against the employer’s OASDI liability for the second quarter. For new hire wages paid beginning 4/1/10, the employer would take the OASDI forgiveness into account for regularly deposited payroll taxes.

Retention Credit – Employers who qualify for payroll tax forgiveness and keep the new worker on the payroll for 52 consecutive weeks can receive a tax credit. The credit is increased with respect to each qualified retained worker by the lesser of $1000, or 6.2% of the wages paid to the worker during the 52-week period. The employer will take the credit on their 2011 tax return (note: the Act does not allow carry back of any unused Section 38 business credit that is attributable to the provision for retained workers). In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period. Domestics and workers eligible for “foreign earned income exclusion” are not eligible.

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