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New Tax Incentives for Hiring the Unemployed

In an effort to motivate businesses to hire the many unemployed, Congress passed the Hiring Incentives to Restore Employment (HIRE) Act, which was signed by President Obama on March 18th.  The key features of this law are two tax incentives available to employers hiring and retaining workers who have been unemployed or underemployed (working less than 40 hours per week) for at least 60 days.

The first tax benefit, a payroll tax exemption, allows employers to avoid paying their portion of the Social Security tax (6.2 percent of wages) for wages paid to qualifying employees from March 19, 2010 to December 31, 2010.

The second tax benefit is tax credit equal to the lesser of 6.2 percent of wages paid to a qualified employee over 52 weeks or $1,000.  This “new hire retention credit” is available for each qualified employee retained for at least 52 weeks.

In order to verify that an employee is a qualified employee (unemployed/underemployed for 60 continuous days), employees are required to sign an affidavit.  Although employers can draft their own form affidavit, the IRS has provided a form (W-11).  Employers need not file these affidavits, but must simply maintain them in the event of an audit.

To avoid the possibility of employers replacing existing workers with unemployed individuals, the law allows the tax benefits on replacements only when the existing worker voluntarily quits or is terminated for cause.  However, if an employee is laid off due to lack of work and later a new, qualifying employee is hired, the employer may claim the tax benefits.

Although this law is primarily focused on getting people who lost their jobs back to work, loss of work is not a prerequisite.  This means that employers looking to hire recent graduates may also benefit from the HIRE Act (as long as employees hired were working less than 40 hours per week during the 60 days prior to hire).

Brody and Associates regularly advises management on complying and remaining up to date with state and federal employment laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.