PRESIDENT OBAMA signed into law the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010, and employers should take note.

As the name implies, the act is intended to reduce unemployment and help stimulate the economy by providing hiring incentives to employers.  The act also addressed an expired expensing provision.

No ‘old age’ tax
The act created an exemption for any private and not-for-profit sector employer (besides household employers) who hires a worker who had been unemployed for at least 60 days from having to pay the employer’s Old Age, Survivors and Disability Insurance (6.2 percent) share of the Social Security payroll tax for that employee. The provision applies to part-time workers but does not apply to the self-employed for their own self-employment tax no matter how many hours the self-employed person works.  

The employee must certify with a signed affidavit that he/she was not employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the qualified employer.  Newly released IRS Form W-11 was created for this purpose.

The provision can apply to rehiring former workers as well as workers who have not previously worked for the employer. However, it does not apply when the new worker replaces a worker whose position was terminated without cause unless there was a legitimate nontax business purpose for the dismissal, such as a downsizing.

It also does not apply when the worker is a family member of a business owner who has more than a 50 percent interest in the company.  Family member for this purpose is defined as siblings, parents, grandparents, children or grandchildren, including step and in-law relationships or a dependent, even if unrelated.  When calculating the 50 percent threshold one must include with their own interest the ownership of certain family members under the family attribution rules.

The amount of Old Age, Survivors and Disability Insurance tax on qualifying first quarter wages is allowed as a credit on the employer's second quarter payroll tax return.  

A long-time tax incentive called the work opportunity credit has the goal of rewarding employers for hiring out of specified targeted groups, one of which is the unemployed.  However, the same wages cannot qualify the employer for both the work opportunity credit and the payroll tax holiday.  The work opportunity credit is only available in this situation when the employer elects out of the payroll tax holiday.