Two New Tax Breaks in the HIRE Act
By: Gardiner Thomsen CPAs | email
On March 18, 2010, President Obama signed the new Hiring Incentives to Restore Employment Act (HIRE) into law. This federal legislation creates brand new tax breaks for hiring and retaining unemployed workers Here’s a quick rundown on two of these key tax breaks:
Employers Get a Payroll Tax Holiday for New Hires, and a Potential Tax Credit Bonus. Normally, an employer is required to pay its share of Social Security taxes on wages earned by employees. For 2010, the portion of the tax is 6.2 percent on the first $106,800 of wages. Under the HIRE Act, an employer is effectively excused from paying its share of the 6.2 percent tax on wages received by “qualified employees.” This exemption applies to wages paid after the date of enactment through the end of 2010. The maximum value for each qualified employee is $6,621. The new law defines a “qualified employee” as someone who meets all of these criteria:
Begins work after February 3, 2010 and before January 1, 2011.
Has not been employed for more than 40 hours during the previous 60 days (ending on the start date).
Was not hired to replace another employee unless the former employee separated from employment voluntarily or for cause.
Is not related to the employer and does not own more than 50 percent of the business, directly or indirectly.
Another tax credit bonus: An employer can claim a tax credit if it retains a qualified worker for a minimum of 52 consecutive weeks. The credit is equal to the lesser of: $1,000 or 6.2 percent of the employee’s wages paid during the 52-week period.
The Super Deduction for Purchasing Business Equipment Has Been Extended. Section 179 of the Internal Revenue Code allows an employer to “expense,” or currently deduct, qualified business assets placed in service during the year, up to a specified maximum. So instead of depreciating equipment over several years, you can write off the entire cost in one year if you qualify and make this election. The maximum deduction is phased out on a dollar-for-dollar basis for the cost of assets exceeding a threshold amount.
Under an earlier stimulus law, the maximum Section 179 deduction allowed for 2009 was $250,000, while the phase-out threshold was set at $800,000. Without an extension, the Section 179 deduction for 2010 had reverted to $134,000 and the phase-out threshold was $530,000. Now the new law preserves the higher limits for qualified assets placed in service in tax years beginning in 2010. (Notes: The HIRE Act does not extend the “bonus depreciation” tax break that was also available for business equipment purchases in 2009.)
