Understanding tax breaks available from the 2010 Hiring Incentives to Restore Employment (HIRE) Act
The 2010 Hiring Incentives to Restore Employment (HIRE) Act, recently signed into law, includes a whopping $17.6 billion in tax breaks for businesses. The “Hire Now Tax Cut” combines payroll forgiveness for Social Security taxes paid on qualified new hires, along with a tax credit for keeping the new hire on the payroll for at least 52 consecutive weeks. In addition to the hiring tax incentives, the new law also extends a tax break for small businesses buying new equipment, while another section of the bill expands an initiative to help state and local governments finance infrastructure programs just in time for the spring construction season.
In essence, the HIRE Act contains an exemption from 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. However, only wages paid after the March 19 enactment date qualify for the payroll tax exemption.
Because the benefits to the employer are tied only to 6.2% of any salary paid, a qualified worker may be hired for any number of hours — full- or part-time. Remember, however, the payroll tax holiday applies only to the 6.2% Social Security portion of the employer's tax. It doesn't apply to the 1.45% Medicare portion of the employer's tax or to any part of the employee's tax.
The IRS is revising Form 941, Employer's Quarterly Federal Tax Return, for the second quarter return due on Aug. 2, 2010. However, the exemption earned for the period from March 19, 2010, to March 31, 2010, may not be claimed on the first quarter Form 941. Instead, it will be claimed on the second quarter Form 941.
There is an additional $1,000 income tax credit for every new employee retained for 52 weeks, to be taken on the employer's 2011 income tax return. The retained worker credit will generally be taken on the employer's 2011 income tax return because of the 52 consecutive-week prerequisite. The new hire must, of course, stay on the job for at least the 52 consecutive-week period to entitle his or her employer to the retained worker business credit.
In another area, the newly passed HIRE Act extends the 2008 and 2009 expensing thresholds so that electrical professionals and businesses can write off up to $250,000 of certain capital expenditures — subject to a phaseout once expenditures exceed $800,000 — in 2010 in lieu of depreciating those costs over time. Qualifying property is defined as depreciable tangible personal property purchased for use in the active conduct of a trade or business, including “off-the-shelf” computer software placed in service in tax years beginning before 2011.
Although limited to small businesses, thanks to the $800,000 ceiling, the so-called “Section 179” expensing is available for both new and used property. Don't forget that Section 179 expensing is keyed to the electrical design, construction, or maintenance operation's tax year, rather than the 2010 calendar.
On the downside, the new law also makes it easier for the federal government to withhold payments from government contractors owing back taxes. Some in the industry predict the tax breaks may generate only 250,000 jobs in 2010 — just a small fraction of the 8.4 million jobs lost since the recession began. Will you and your electrical firm be among those who reap the savings under the HIRE Act?
Battersby is a freelance writer in the suburban Philadelphia community of Ardmore, Pa. He can be reached at MEBatt12@earthlink.net.