Pending Payroll Bill Would Affect Employer Tax Payments

Tuesday, March 02, 2010

In late February, the Senate passed H.R. 2847, the Hiring Incentives to Restore Employment Act (HIRE Act) by a 70-28 vote. As of this writing, the bill had not yet become law, but was pending in the House of Representatives. If subsequently signed by the President and enacted, the HIRE Act would provide a tax break to employers who hire unemployed workers after February 3, 2010, through the end of 2010.

Specifically, under Section 101 of the HIRE Act, most U.S. employers would be exempt from paying their portion of Social Security taxes (6.2 percent) for newly hired employees, who are called “Qualified Individuals.” This special exemption would not be available to U.S and state governments, or any of their political subdivisions (e.g., city or county governments). However, the tax break would be available to public institutions of higher education (as defined in §101(b) of the Higher Education Act of 1965).

Qualified Individuals under the HIRE Act would be defined as follows:

• The individual began employment with the Qualified Employer after February 3, 2010, and before January 1, 2011.
• The individual was employed for no more than 40 hours during the 60-day period ending on the date that the individual was hired by the Qualified Employer. This requirement must be certified by an affidavit by each Qualified Individual, under penalties of perjury.
• The individual was not employed by the Qualified Employer to replace another employee unless the other employee separated from employment voluntarily or for cause.
• The individual does not bear any of the following relationships to any owner (as defined by §51(i)(1) of the Internal Revenue Code) of the Qualified Employer:
• A child or a descendant of a child
• A brother, sister, stepbrother or stepsister
• The father or mother, or an ancestor of either
• A stepfather or stepmother
• A son or daughter of a brother or sister of the taxpayer
• A brother or sister of the father or mother of the taxpayer
• A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law
• An individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to §7703 of the Code, of the owner) who, for the taxable year, has the same principal place of abode as the owner and is a member of the owner’s household

The special exemption under the HIRE Act would apply to wages paid for employment during the period beginning on the day after the HIRE Act enactment date and ending on December 31, 2010. There could be tax-related reasons that would cause an employer to want to opt out of this tax break, and the HIRE Act allows employers to do so. Employers of all sizes would qualify. If an employer received the Work Opportunity Credit for a Qualified Individual, the employer would not be eligible for the tax break under the HIRE Act.