Publications

---

By a vote of 72 to 28, the United States Senate yesterday adopted the Hiring Incentives to Restore Employment Act (HIREA), a modest tax and spending proposal ($15 billion) that contains a new tax incentive to encourage employers to hire new workers. The House of Representatives is expected to consider this measure as early as tomorrow, Friday, February 25, and will likely pass it without altering the tax provisions.

There is a dispute, however, between the House and Senate over the way in which surface transportation funds are allocated in the legislation, and House Democratic leaders will decide soon whether to leave the Senate transportation provisions alone in order to be able to send the legislation quickly to the President for signature, or whether a modification of these provisions is needed. In any event, strong bipartisan support for the bill in the Senate and considerable pressure from the President to finish the bill makes it very likely that it will become law very soon, with no changes to the tax provisions.

The hiring incentive is in two parts. The first part provides that employers who hire individuals after February 3, 2010 and before January 1, 2011 who certify by affidavit, under penalties of perjury, that they have not been employed for more than 40 hours during the preceding 60-day period ending on the first day of work, are not required to pay their portion of social security taxes (6.2 percent of the first $106,800 in wages) during 2010. Employers may elect, however, to pay these taxes voluntarily.

There are two additional limitations. Employers may not receive this benefit by replacing a new employee for an existing employee unless the existing employee separated from service voluntarily or for cause, and employers may not receive the work opportunity credit with respect to any wages taken into account with respect to the hiring incentive (unless the employer elects not to have it apply).

Employers who may take advantage of the new incentive include both taxable and tax-exempt employers, but not the United States and state governments, or any political subdivisions or instrumentalities of government (public colleges are eligible, however).

The second part of the incentive is an income tax credit of $1,000 with respect to every worker hired under the first part of the incentive and who was employed for a period of not less than 52 consecutive weeks, and whose wages for the second 26 weeks of that period were at least 80 percent of the wages paid during the first 26 weeks.

The Treasury Department and IRS are already working on guidance to implement this incentive, given the high likelihood that it will soon become law and is effective retroactively to employees hired after February 3, 2010. In that regard, Treasury has no explanation of the law outside of the statute itself because there is no legislative history of the incentive. HIREA is exceptional in that it was brought to a vote on the Senate floor and will be brought to a vote in the House without passing through the tax writing committees, where there would have been extensive debate and analysis and reports of the provisions would have been prepared (there is a brief technical explanation from the Congressional Joint Committee on Taxation, however).

In all likelihood, Treasury will issue guidance shortly after HIREA becomes law, and is likely to draw on existing regulations and guidance in the payroll area. Formal guidance (after public hearings) is not likely ever to be issued because the incentive is temporary.