Client Alert from the Labor and Employment Group - May 2010
You're HIREd!
New Law Provides Tax Benefits for
Hiring Unemployed Workers
On March 18, 2010, the Hiring Incentives to Restore Employment Act ("HIRE") became effective. The law provides, among other things, limited payroll tax forgiveness to qualified employers who hire qualified individuals after February 3, 2010, and before January 1, 2011. Additionally, HIRE allows qualified employers to claim a one-time general business tax credit of up to $1,000 for each previously unemployed employee subject to certain restrictions.
Payroll Tax Forgiveness
An employer may qualify for certain relief from taxes normally imposed on wages paid to qualified individuals after the effective date of the law (March 18, 2010) through December 31, 2010. Employers may claim the payroll tax relief starting April 1, 2010, with a special credit against second-quarter taxes for qualifying post-enactment first-quarter wages.
Qualified Employer
A qualified employer generally means any employer other than the United States, any state or political subdivision, and most other governmental entities. Household employers are also not considered qualified employers. Qualified employers include businesses, agricultural employers, tax-exempt organizations and public colleges and universities.
Qualified Individual
The term qualified individual means any individual who:
- begins employment with an employer after February 3, 2010, and before January 1, 2011;
- certifies by signed affidavit, under penalty of perjury, that s/he has not been employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the employer (The IRS has created Form W-11, released this month, to assist employers in confirming that the individual is qualified. Form W-11 can be found at http://www.irs.gov/pub/irs-pdf/fw11.pdf);
- is not employed by the employer to replace another employee of the employer unless the other employee separated from employment voluntarily or for cause; and
- is not related to the employer. According to Form W-11, an employee is considered to be "related" if s/he is the employer's child or a descendant of the employer's child, a sibling or stepsibling, a parent or an ancestor of a parent, a stepparent, niece or nephew, aunt or uncle, or in-law of the employer. An employee is also related to the employer if s/he is related to anyone who owns more than 50% of the outstanding stock or capital and profits interest of the company, or is a dependent either of the employer or of anyone who owns more than 50% of the outstanding stock or capital and profits interest of the company.
Business Tax Credit
Additionally, HIRE allows employers to claim a one-time general business tax credit of up to $1,000 for each previously unemployed employee provided the employee: (1) is employed on any date during the tax year; (2) continues to be employed by the employer for a period of not less than 52 consecutive weeks; and (3) receives wages as defined in section 3401(a) of the Internal Revenue Code for such employment during the last 26 weeks of the period that are at least 80% of the wages received during the first 26 weeks of the period. The additional business tax credit is claimed for the employer's taxable year that includes the end of the 52-consecutive-week period of employment for each qualifying employee. For any employee for whom the employer is eligible to claim a HIRE business tax credit, the employer is not eligible to also claim a Work Opportunity Tax Credit ("WOTC") unless it makes an election not to apply HIRE. HIRE provides for automatic coverage unless the employer opts out. While other business credits can generally be carried back, the HIRE business tax credit cannot be utilized in a tax year beginning prior to the date of enactment.
The information in this Client Alert is a summary of often complex legal issues and may not cover all of the "fine points" of a specific situation or court jurisdiction. Accordingly, it is not intended to be legal advice, which should always be obtained in consultation with an attorney. The lawyers in Walter & Haverfield's Labor and Employment Law Group will be pleased to assist with any questions about this new law. |
