If you have plans to enlarge your office staff anytime soon, consider doing it sooner, rather than later.
In March, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act into law. Known popularly as the “Jobs Bill,” its intended purpose is to get the unemployed back to work by encouraging the hiring of employees now.
The new law exempts private-sector employers from their 6.2% share of the Social Security payroll tax for the remainder of 2010 on all new hires who had been unemployed for the previous 60 days or more.
This is a hiring incentive that, for once, works to your advantage, as well as that of your new employees. For one thing, the tax benefit is immediate; it helps your cash flow instantly, because there are no refunds—the tax is simply not collected in the first place. For another, if you keep your new employees on payroll for at least 52 weeks, you, as the employer, can take an additional tax credit of up to $1,000 for each new employee, on your own 2011 tax return.
(More precisely, the credit is the lesser of either $1,000 or 6.2% of the wages paid to the worker during the 52 consecutive-week period; that means it will be $1,000 for any employee paid more than about $16,130 over that period.)
There is no limit to the number of employees you can hire, no maximum or minimum salary you need to pay, and no cap on the total dollar amount of tax that may be forgiven; your office saves 6.2% whether your new employee is a $30,000 medical assistant, a $100,000 physician assistant, or a $250,000 physician.
Part-time employees also are eligible; there is no minimum number of hours that new employees must work. However, the salary you pay a part-time employee in the second 26 weeks of that first year must total at least 80% of his or her pay over the first 26 weeks.
The objective of the new law is to create new jobs, not to hire the unemployed at the expense of those who have jobs already. So if you are thinking about laying off your entire staff and hiring a completely new crew solely for the purpose of taking the payroll exemption, forget about it. A new hire who replaces another employee who performed the same job is not eligible for the benefit, unless the prior employee left voluntarily or was fired for cause.
Congress anticipated and proactively plugged some other obvious loopholes; you cannot get the exemption by firing employees for 60 days and then hiring them back, for example. And you cannot claim the new tax breaks by hiring family members or by employing domestic workers in your home.
The law also forbids double dipping: If you have employees who are eligible for the Work Opportunity Tax Credit (WOTC), you must select one benefit or the other for 2010, not both.
The law requires each eligible worker to certify by signed affidavit that he or she has not been employed for more than 40 hours during the preceding 60-day period, that no one was fired without cause to create the job being taken, and that the employer is not a relative or family member.
You should explain to these new hires that they will not be paying into Social Security in 2010, but their eventual Social Security benefits will not be decreased because of it.
Remember, the incentive only applies to wages paid to eligible new employees for the remainder of this year; the idea is to decrease unemployment now. So the sooner you hire, the longer your payroll tax holiday will last.
The IRS will be watching, so be sure to check with your lawyer and accountant, and get all your documentation straight.