On March 18, 2010 President Obama signed into law the $17 billion Hiring Incentives to Restore Employment (HIRE) Act. HIRE is part of the President's broader economic stimulus effort to encourage businesses to hire more employees. The provisions are effective immediately.

Key provisions of the HIRE Act:

· Exemption from paying Social Security Taxes: The new law exempts any private-sector employer that hires a worker who has been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. An employer can save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800-the maximum amount of wages subject to Social Security taxes-by the end of the year.

· Business Retention Tax Credit: For any qualifying worker hired under the HIRE Act that the employer keeps on payroll for a continuous 52-week period, the employer is eligible for an additional non-refundable tax credit of up to $1,000 to be taken off their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay on the first 26-week period.

· Extension of Small Business Expensing: The new law also extends Internal Revenue Code Section 179, which allows an employer to deduct the cost of certain types of property from its income taxes as an expense rather than requiring the property to be capitalized and depreciated over time, for an additional year. Qualifying property is generally limited to tangible, depreciable, personal property which is acquired for use in the active conduct of a trade or business.

Qualifying employees under the HIRE Act:

· Qualifying employees are individuals who (1) begin employment with a qualified employer after February 3, 2010 and before January 1, 2011, and (2) have been unemployed or employed for less than 40 hours during the 60-day period ending on the date such employment begins. The 60-day period must be continuous and can span 2009-2010.

· A worker who is re-hired by an employer is a qualifying employee so long as the employee otherwise qualifies.

· A worker who is hired to staff a new business is a qualifying employee so long as the employee otherwise qualifies.

· A worker who is a recent graduate is a qualifying employee so long as the worker had been in school for some or all of the 60 days preceding the start of his or her employment.

· A family member is not a qualifying employee.

· An employee hired to replace an existing worker is not a qualifying employee, unless the existing worker terminated his or her employment voluntarily or was terminated for cause.

· Household workers are not qualifying employees.

Qualifying Employers under the HIRE Act:

· The tax benefit generally applies only to private-sector employers, which includes non-profit organizations. Federal, State or local government employers generally do not qualify for the payroll tax exemption. However, public colleges and universities can qualify for the exemption.

How to receive the HIRE Act incentives:

· An employer must certify that each employee hired under the HIRE Act was employed for no more than 40 hours in the 60-day period ending on the date that employment begins. This must be verified by a signed affidavit, under penalty of perjury, from the employee. The affidavit is available on the IRS' website at: www.irs.gov/pub/irs-pdf/fw11.pdf.

· The payroll tax exemption is claimed on Form 941, Employer's Quarterly Tax Return, beginning with the second quarter of 2010. This means that the exemption for wages paid during the period of March 19-March 31, 2010 (the first quarter of 2010) is claimed on the employer's Form 941 for the second quarter of 2010.

· The $1,000 retained worker credit is claimed by an employer on its 2011 tax return.

Other important information:

· There is no minimum weekly number of hours that the new employee must work for an employer to be eligible for the exemption.

· For employees that would otherwise be eligible for the "Work Opportunity Tax Credit" (WTOC) the employer must select either the HIRE Exemption or the WTOC for 2010, they cannot claim both.

· Employers are still required to withhold the employee's share of the Social Security tax (which is also 6.2%).

To find out more about Clark Hill and our Labor and Employment Practice Group, visit clarkhill.com or call 800.949.3124

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