To help jumpstart business hiring and spending Congress has passed and President Obama has signed the Hiring Incentives to Restore Employment (HIRE) Act. The HIRE Act is expected to be the first of several targeted jobs bills to be passed by Congress in 2010. Many of the provisions have an effective date of March 18 2010 the date of enactment.
Payroll Tax Forgiveness.
The HIRE Act provides qualified employers with temporary payroll tax forgiveness of the employer s 6.2 percent share of Social Security payroll taxes on wages paid to new hires who had been previously unemployed. Payroll tax forgiveness is effective for qualified employees on wages earned for work after March 18 2010 and on or before December 31 2010. A qualified employee must begin work any time after February 3 2010 and before January 1 2011. The employer generally must be a private sector for-profit or tax-exempt employer (with some limited exceptions).
The newly hired worker must not have been employed for more than 40 hours during the 60-day period ending on the date that the individual begins employment. Additionally the newly hired employee cannot displace a worker who is currently on the employer s payroll unless the worker voluntarily separated from employment or was terminated from employment for cause. Newly hired individuals who are related to the employer or who own (directly or indirectly) more than 50 percent of the business are ineligible. A qualified individual may be hired for any number of hours full-time or part-time since the benefits to the employer are tied only to 6.2 percent of any salary paid.
The HIRE Act requires that individuals certify they have not been employed for more than 40 hours during the 60-day period ending on the date they begin employment. The IRS is expected to issue guidance on the certification requirement.
Keep in mind that the HIRE Act s payroll tax forgiveness applies only to the employer s share of Social Security taxes. Employers remain liable for Medicare payroll taxes. The worker also must pay his or her share of Social Security taxes as well as federal income taxes.
Retained Workers Business Credit.
Under the HIRE Act employers that hire new workers who qualify for payroll tax forgiveness may also be eligible for a tax credit for each qualified employee. For the employer to be entitled to this new credit the qualified employee must be retained on the employer s payroll for 52 consecutive weeks. The business credit under Code Sec. 38 will be increased with respect to each qualified retained worker by the lesser of $1 000 or 6.2 percent of wages paid by the employer to the qualified retained worker during the 52 week period.
A qualified retained worker must be paid an amount equal to at least 80 percent of his first 26 weeks of wages during the last 26 weeks of the 52-week qualifying period. The HIRE Act excludes wages earned by a domestic worker or an individual eligible for the foreign earned income exclusion. The HIRE Act also includes carryback rules for the credit.
Extension of Section 179 Expensing.
Under Code Sec. 179 businesses can elect to recover all or part of the cost of qualifying property up to a limit by deducting it in the year it is placed in service. Before the HIRE Act Code Sec. 179 expensing for 2010 was limited to $125 000 with a $500 000 cap (both amounts adjusted for inflation). The HIRE Act raises the dollar limit to $250 000 and the cap to $800 000 (the same amounts in place in 2009). Under the HIRE Act write-offs can be taken under phaseout rules until qualified purchases reach $1 050 000. The HIRE Act applies to qualified purchases made in tax years beginning after December 31 2009 and before January 1 2011. The HIRE Act also provides that off-the-shelf computer software a popular business purchase is Code Sec. 179 property.
Foreign Account Reporting.
The Bank Secrecy Act requires taxpayers to report if they have a financial interest in signature authority or other authority over one or more accounts in a foreign country and the value of the account exceeds $10 000 at any time during the calendar year. The Bank Secrecy Act does not prohibit taxpayers from owning a foreign bank account. It just requires reporting and disclosure. The rules apply to all citizens and residents of the U.S. as well as domestic corporations estates partnerships and trusts.
The HIRE Act imposes additional reporting and disclosure requirements on taxpayers and financial institutions. Generally individuals with accounts in foreign financial institutions must disclose on their federal tax returns the name of the financial institution the account number and the maximum value of the asset during the tax year. The aggregate value of the foreign financial assets must exceed $50 000 for the disclosure requirements to apply. The HIRE Act provides penalties for failing to disclose. The penalties range from a low of $10 000 to a high of $50 000.
Foreign financial institutions will also be subject to heightened reporting requirements. Generally foreign financial institutions will be required among other things to report the name address and tax identification number (TIN) of each account holder who is a specified U.S. person. The HIRE Act also will require withholding agents- starting after 2012-to withhold 30 percent of certain payments to foreign financial institutions that do not agree to the new reporting requirements.
Along with the heightened reporting and disclosure measures the HIRE Act also increases the statute of limitations to six years for failure to report certain offshore transactions and income.
Pending Legislation.
Congress continues to debate several other bills designed to stimulate economic growth. Pending bills include a package of extenders. These are popular but temporary tax breaks which generally expired at the end of 2009. Congress is also debating an extension of COBRA premium assistance which provides a subsidy to qualified individuals to help offset the cost of COBRA continuation coverage. Also waiting for passage in Congress is an extension of the federal estate tax which expired for decedents dying after December 31 2009. Several retirement and pension bills are also pending. Additionally Congress has to approve a fiscal year (FY) 2011 budget for the IRS. The Obama administration has asked Congress to increase the IRS s funding for enforcement compliance and customer service.
If you have any questions or would like more detailed information about the HIRE Act or pending legislation please contact us.
Information contained in this alert should not be construed as the rendering of specific accounting tax or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages direct indirect or consequential claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.
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