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President Obama Signs HIRE Act, Creating Tax Incentives For Hiring And Retaining Employees

President Obama today signed the Hiring Incentives to Restore Employment Act (the “HIRE Act”).  Intended to spur employment, this statute creates significant tax incentives for employers to hire and retain workers.

The HIRE Act exempts employers from Social Security taxes in 2010 with regard to each new employee who meets the following criteria:

  • Begins employment after February 3, 2010 and before January 1, 2011;
  • Certifies by signed affidavit, under penalties of perjury, that he or she has not been employed for more than 40 hours during the 60-day period ending on the date when he or she begins the new employment;
  • Is not employed by the employer to replace another employee unless such other employee separated from employment voluntarily or for cause; and
  • Is not an individual described in IRC § 51(i)(1) (i.e., is not a family member of the employer or, if the employer is an entity, of the majority owner).

The HIRE Act also increases the current year business credit with respect to each new hire who is retained for a full year, provided that he or she:

  • Was hired by the taxpayer on any date during the taxable year ending after March 18, 2010;
  • Was employed by the taxpayer for a period of not less than 52 consecutive weeks; and
  • Whose wages during the last 26 weeks of this employment equal at least 80% of the wages for the first 26 weeks of this employment.

The tax credit for each such retained worker is increased by the lesser of (a) $1,000 or (b) 6.2% of the wages paid to the retained worker during the consecutive 52-week period.

Significantly, both of the tax incentives described above may be applied to the same employee, provided that all requirements are met.

The HIRE Act applies to all for-profit and non-profit employers, regardless of size, and including public institutions of higher education.  Accordingly, only governmental employers are outside the scope of this statute.

Employers are encouraged to make hiring, pay and retention decisions as soon as possible, as the HIRE Act provides greater benefits to those employers that hire early and that substantially maintain their new hires’ wages.

Please do not hesitate to contact us if you have any questions about the HIRE Act, or if you would like assistance in creating a hiring program designed to maximize your organization’s benefits under this statute, including but not limited to creation of an affidavit and related documentation.