HIRE ACT Provides Payroll Tax Breaks for Contractors

The Hiring Incentives to Restore Employment Act (HIRE ACT)

only applies to wages paid after March 18 to employees who have been unemployed for at least 60 days. Employees hired after February 3, 2010 are eligible but the exclusion only applies to their post-March 18 compensation. The exclusion applies only to the 6.2% employer’s part of Social Security, which means that the employee’s share of payroll tax and the employer’s Medicare tax is not affected by the exemption.

The 6.2% exemption applies to the remainder of 2010, but one provision can extend the benefits past this year. If the employer keeps a qualified employee on the payroll for a continuous 52 weeks, the employer is eligible for a $1,000 bonus after that 52 week threshold is met. That credit will be taken on a 2011 return. The employee’s pay in the second 26 weeks of the 52 weeks has to be at least 80% of the pay in the first 26 weeks. And the bonus is the lesser of $1,000 or the 6.2% exemption, which means that the full credit is only available if the total compensation to the employee is at least $16,129 during the 52 weeks.

There is no minimum or maximum number of hours or dollars of pay, but the employment has to be continuous. There is no limit on the number of employees that an employer may claim the exemption or the $1,000 bonus, but there is no double benefit if the employee is eligible for the Work Opportunity Tax Credit – one or the other has to be chosen. Family members are not eligible employees and an employee who replaced another employee may not be eligible.

The new law also

continues the Section 179 expensing, for tax years starting in 2010, of up to $250,000 of machinery and equipment, with the same rules and limits that have been in effect for 2008 and 2009. Those rules require the phasing out of the $250,000 when the total equipment purchases exceed $800,000 for the year.

For more information on the HIRE ACT, contact David B. Blain at dblain@macpas.com.