Worry no more, the government comes to our rescue... the HIRE Act

President Obama is widely expected tomorrow, Thursday March 18, to sign into law the $17 billion Hiring Incentives to Restore Employment, or HIRE Act that passed the Senate on Wednesday on a bipartisan vote of 68-29.

What, you have doubts? The Senate has approved legislation that provides businesses with a payroll tax exemption for hiring new employees.  Certainly this legislation is a positive step but let’s face it, employers are not going to run out and start hiring the unemployed for the sake of hiring, at least not unless there is a 100% refundable tax credit. After all, would you spend $100 to save a little over $6? Of course not. But, for those businesses that may be on the brink of hiring the tax benefits in the HIRE Act could make a real difference.

“The bill we passed today is a targeted approach designed to get Americans back to work right away by creating jobs to rebuild our country’s infrastructure and providing tax cuts for businesses to hire new workers,” said Senate Finance Committee Chairman Max Baucus, D-Mont., in a statement.

The bill contains a payroll tax exemption for newly hired employees. This provision offers an exemption from the Social Security payroll taxes for every worker hired after Feb. 3, 2010, and before Jan. 1, 2011, who has been unemployed for at least 60 days. The maximum value of the credit would be equal to 6.2 percent of wages up to $106,800, the Social Security (FICA) wage limit.

An additional $1,000 income tax credit would be available to businesses for every new employee retained for 52 weeks, to be taken on the employer’s 2011 income tax return.

The House modified the tax breaks by providing an exemption from the railroad retirement tax for qualified employers, paid in lieu of the Social Security payroll tax for certain railroad employees. This just means that those covered by the railroad provisions get the same treatment as those covered under Social Security provisions.  The House went on and modified the income tax credit for retaining an employee for a consecutive 52 weeks to equal the lesser of $1,000, or 6.2 percent of the wages paid to the employee for those 52 weeks.

The House modification provided that allowable exemptions from the payroll taxes for the first calendar quarter of 2010 under the HIRE Act may only be treated as an advance payment of taxes owed for the second calendar quarter. This change was made in order to ease IRS implementation of the payroll tax exemption.

Another tax benefit in the bill would extend 2008 and 2009 Section 179 expensing limits so that businesses may elect to write-off up to $250,000 of certain capital expenditures (equipment, etc.), subject to a phase-out once expenditures exceed $800,000 in 2010 in lieu of depreciating those costs over time. Question… why would they want to limit this benefit to those companies spending more than $800,000? It seems to me that all the capital spending that a business can be encouraged to make means more job creation and economic benefit. Alas, applying common sense to all the politics is a recipe for a headache.

Time for the real fun now - How do you file your forms to get the tax benefits of the HIRE Act?

As I wade through the text of the HIRE Act -- all 360+ pages -- I am struck by how thankful I am not to be working in any of the departments within the U.S. Treasury that will have to figure out how to implement, manage and monitor these new tax provisions.

If you are a business owner or manager that is planning any new hires now or soon the best advice is to take the expressway to your CPA or tax adviser. The process for actually getting the tax incentives will almost certainly be confusing and complex, especially given the very short trigger time the U.S. Treasury and IRS have to get the process implemented.

Stay tuned, I will post more information as it comes available.

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