HIRE ACT Explained

In March 2010, President Obama signed the Hiring Incentives to Restore Employment Act (the “HIRE Act”). The HIRE Act provides employers (a) a Social Security payroll tax exemption for hiring unemployed workers, and (b) an additional tax credit for retaining the new hires for at least one year.

 (a) Social Security Tax Exemption for Newly-Hired Workers

 The HIRE Act provided employers with an exemption from paying their portion of the 6.2% Social Security payroll tax for each worker hired in 20101 who had been unemployed for at least 60 days. To qualify for the Social Security payroll tax exemption, an employer must:

 1. Hire a new employee from February 4, 2010 through December 31, 2010; and

 2. Obtain a signed affidavit from the newly-hired employee certifying, under penalty of perjury, that the new employee worked fewer than 40 hours during the 60-day period ending on the first day of employment.

The Social Security payroll tax exemption was effective from March 19, 2010 through December 31, 2010.

 (b) Additional Tax Credit for Employers Retaining New Hires

 The HIRE Act also provides employers with an income tax credit for each qualifying worker hired from February 4, 2010 through December 31, 2010 and employed for at least 52 consecutive weeks thereafter. The amount of the credit is the lesser of (a) $1,000, or (b) 6.2% of wages paid to the qualifying worker. Qualifying workers must receive wages during the second 26 weeks of employment that are at least 80% of the wages received during the first 26 weeks of employment. Employers can claim this credit when they file their 2011 income tax returns.

 The challenge is that, due to their complexity, most employers did not take advantage of these very lucrative tax exemptions.