Hiring Incentives to Restore Employment (HIRE) Act

Incentives to hire unemployed workers and/or retain newly hired employees
A new law recently signed by President Obama (Hiring Incentives to Restore Employment Act – or - HIRE) may help restaurant operators reduce their payroll taxes, particularly those with seasonal businesses who may be gearing up to hire new employees for the summer months. 

The HIRE Act, which is also known as the Jobs Bill, provides a payroll tax holiday for hiring certain unemployed workers after February 3, 2010 and before January 1, 2011. 

Section 102 of the Act provides a business tax credit for retention of certain newly hired workers in 2010.  Your company may be able to take advantage of these two temporary provisions.  

Below you’ll find a summary of the two provisions:

Payroll Tax Holiday 
FICA tax forgiveness went into effect on March 19, for “qualified employers" who hire a "qualified individual" after February 3rd, 2010 and before January 1st, 2011.

A qualified employer = any employer other than the government.

A qualified individual = someone who "certifies by signed affidavit, under penalties of perjury, that such individual has not been employed for more than 40 hours during the 60-day period ending on the date such individual begins such employment."

In addition, a qualified individual cannot be "employed by the qualified employer to replace another employee of such employer unless such other employee separated from employment voluntarily or for cause."  An explanation provided by the Joint Committee on Taxation states that rehiring laid-off workers or filling positions of laid-off workers with new workers is permitted.

Lastly, a qualified individual cannot be a relative of the employer as defined in IRC section 51(i)1.

The law stipulates that employers cannot claim FICA forgiveness for their qualified hires in the first quarter of 2010.  Instead, employers are required to accrue these tax savings for the first quarter and credit it toward their second quarter FICA taxes.

Treasury regulations implementing the HIRE Act will be issued soon, but in the meantime employers may proceed by adhering to information outlined here.

Until the Department of Treasury issues guidance implementing the new law, employers can establish their claim for the FICA forgiveness and employee retention credits as follows:

• Employers should have each individual, for whom FICA forgiveness is claimed, complete a signed affidavit certifying as follows: “I (name of employee), certify under penalties of perjury, that I have not been employed for more than 40 hours during the 60-day period ending on (date of commencing employment),” and retain the affidavit in their files.
• Employers should certify for each qualified individual they hire that: 1) the individual is being hired to perform services in a trade or business of the employer; 2) the individual is not being employed to replace another employee unless such other employee separated voluntarily or for cause; and 3) the employer is in compliance with IRC section 51(i)1 regarding prohibition on hiring of relatives.

IRS Guidance

• There will be a new Form 941 to account for the tax credits starting with the second quarter. 
• First quarter wages and credits will also be reported on this form.  There will be a standard affidavit for employers to use with eligible employees.
• Starting in the second quarter, employers may reduce their federal deposits throughout the quarter by the eligible employer Social Security tax amount, or they can wait to claim the credit on their 941 return. 

Employee Retention Tax Credit
To claim the Employee Retention Credit (ERC), employers must document:  1) 52 consecutive weeks of employment with the employer by a qualified individual, and 2) wages during the last 26 weeks of employment being not less than 80 percent of wages during the first 26 weeks of employment. 

The ERC is $1,000 or 6.2 percent of wages paid to the employee over the 52-week period, whichever is less.  As a rule of thumb, if weekly wages average more than $310 over the period, ERC is $1,000.  If weekly wages average less than $310, ERC must be computed as .062 times total wages for the 52 weeks.

The ERC is an addition to the General Business Credit of IRC Section 38 and follows the rules of Section 38 with a single exception - any excess business credit resulting from the employee retention credit may not be carried back.  It may, however, be carried forward.