Publications

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President Barack Obama has signed into law the Hiring Incentives to Restore Employment Act (HIRE Act), a modest tax and spending proposal ($17 billion) that contains a new tax incentive to encourage employers to hire new workers.

The bill is the first to be signed into law of an expected series of bills that will be considered in Congress to incentivize job creation. Other jobs bills will likely address the extension of expiring tax breaks and may create new incentives to encourage “green” jobs.

Treasury Department and IRS are already working on guidance to implement the incentive.

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 beginning March 19, 2010, the day after the date of enactment. 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 first year of service for any employee for whom the employer takes the hiring incentive (as a result, WOTC generally is not available unless the employer elects not to have the new hiring incentive 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 the lesser of $1,000 or 6.2 percent of wages paid to any worker for the first year of service year who qualified for 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 have been working on guidance to implement this incentive in order to assist employers with the implementation of these new credits quickly given that it 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. The HIRE Act is exceptional in that it was brought to votes in House and Senate floors 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 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.