HIRE Act’s Second Half

Businesses looking ahead to the 2011 tax season will want to take advantage of the lucrative second half of the Hiring Incentives to Restore Employment (HIRE) Act. Signed into law on March 18, 2010, it provides employers two incentives for hiring unemployed workers: an exemption from employer payroll taxes and an income tax credit for retaining eligible workers one year later. Businesses that took advantage of the payroll tax forgiveness during 2010 should remember to claim the New Hire Retention Credit on their 2011 tax returns.

The first incentive under the HIRE Act provides an exemption from the employer's portion of social security tax on the wages of qualified new hires. The second incentive rewards employers for retaining the workers they hire. The retention credit allows employers to claim up to $1,000 for each qualified new hire they have retained for 52 weeks. The IRS has issued the final version of Form 5884-B for businesses to claim the credit, and it should be filed along with the employer’s tax return.

When President Barack Obama took office in January 2009, the United States economy was in free fall, and the country was losing an average of 750,000 jobs per month. In his January 2010 State of the Union address, the President called on Congress to enact a tax credit for businesses that hire new workers. The HIRE Act is an example of one of the targeted measures the Obama administration has taken to boost the economy and encourage employers to hire unemployed workers.

According to a December 8, 2010, Treasury Department report, more than 10.6 million workers who were hired during 2010 were eligible for the HIRE Act incentives. The act is estimated to cost $13 billion and was designed to be paid for, in part, by enforcement of additional reporting and disclosure requirements by holders of foreign accounts. While many private employers qualified for and took advantage of the HIRE Act, it is still unclear whether it will fully achieve its goals.

Though employers will appreciate the tax break, the benefit is small compared to the cost of adding a full-time worker, and the decision to permanently hire workers is usually more influenced by business strategy than tax incentives.

I recently discussed the tax incentive with the owner of several nursing homes and assisted living facilities in the Southeast. He commented that the incentive was an added bonus for hiring workers he would have hired anyway. As we talked more, it was clear that health care reform was still the larger concern for employers, who were more worried about survival than expanding their businesses. He believes the economy will not grow until people have more confidence about what the new playing field looks like. “Until then,” he said, “most will sit on the sidelines and wait for stability."

Though stability does not appear to be right around the corner, the HIRE Act incentives are simple enough to claim; no one who is eligible should pass them up.

Rebecca Wolf is a manufacturing and distribution manager with LarsonAllen.
rwolf@larsonallen.com or 704-998-5247