Labor Attorney

HIRE Act Tax Credits for Employers

Written on September 10, 2010 by admin

Filed Under: Journal

Employers are entitled to a tax credit when they hire qualified employees under the Hiring Incentives to Restore Employment or HIRE Act, passed in March 2010.

The hire act provides tax credits for an employer who hires a qualified employee between February 4, 2010 and December 31, 2010. A qualified employee is a person who has been unemployed for 60 consecutive days or more, on the date that he or she is hired. The employee can have worked no more than 40 hours total in the 60 days prior to being hired.  

Under HIRE, employers initially qualify for a payroll exemption tax credit of 6.2% on the employee’s wages paid from March 19 to December 31, 2010. This credit equals the employer’s portion of social security taxes. In addition, employers are entitled to an additional tax credit equal to 6.2% of the employee’s wages, up to $1,000 when the employee works for at least 52 weeks.

Certain limitations apply to employees hired under the federal act. The new employee can be hired to:

1. Replace an employee who has quit
2. Replace an employee who was fired for cause
3. Fill a new position

An employer who recalls a laid-off employee may also qualify.

Employers are not eligible for the tax credit if they lay off current workers and immediately replace them with different individuals who have been unemployed for at least 60 days. However, if the employer rehires an employee who has been previously laid off and unemployed for 60 days, the employer does qualify for the tax credit.

An employer cannot collect the tax credit by hiring a family member, or another individual who is related to the employer, such as a part owner of the business.

Qualified employees must sign an affidavit, called IRS Form W-11, which certifies they have been unemployed for at least 60 days. Employers cannot claim a tax credit until they have this form in hand.

Students and recent graduates who have not worked more than 40 hours in the past 60 days are qualified employees for the HIRE tax credit.

Read more on Labor Law Center Blog

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