May 14, 2010

Tax Benefits to Small Businesses through the HIRE Act

New tax benefits are available to employers who hire workers who were previously unemployed or only working part time. They are part of the Hiring Incentives to Restore Employment (HIRE) Act.

Employers who hire unemployed workers this year may qualify for a 6.2 percent payroll tax incentive, essentially exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced withholding will have no effect on the employee’s future Social Security benefits, and employers will still need to withhold the employee’s 6.2 percent share of Social Security taxes, as well as any income taxes. The employer and employee’s shares of Medicare taxes will also still apply to these wages.

Also, for each worker that is retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The benefits are especially helpful to employers who are adding employees to their payrolls. New hires that fill existing positions will also qualify but only if the workers they replace left voluntarily or for cause. Family members and other relatives do not qualify.

The new law requires that the employer get a statement from each new hire that certifies that he or she was unemployed during the 60 days before beginning work, or that they worked less than a total of 40 hours per week for someone else during the 60-day period.

All forms of businesses, tax exempt organizations, and higher education institutions qualify to claim the payroll tax benefit for eligible newly-hired workers. However, homebased employers cannot claim this benefit.

Employers can claim the payroll benefit on their quarterly filed federal employment tax return. Eligible employers will be able to claim the new incentive on their revised employment tax form for the second quarter of 2010. Further details will be posted on the IRS website.,,id=220745,00.html

Small Business Health Care Tax Credit

Many small businesses and tax-exempt organizations that provide health insurance for their employees now qualify for a special tax credit. The credit is included in the health care reform legislation, the Patient Protection and Affordable Care Act, it is designed to encourage small businesses to offer health insurance for the first time or maintain coverage that exists.

The credit is available to employers that pay at least half the cost of single coverage for their employees. The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Then in 2014 the maximum credit increases to 50 percent of premiums paid by eligible employers and 35 percent of premiums paid by eligible employers that are tax exempt.

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. It is mostly available to employers that have fewer than 25 full time employees paying wages averaging less than $50,000 per employee per year. The maximum credit will go to smaller employers with 10 or fewer full time employees paying annual wages of $25,000 or less.

Eligible businesses can claim the tax credit as part of the general business credit starting with the 2010 income tax return they file in 2011. The IRS plans to provide future information related to tax-exempt employers on how to claim the credit.,,id=220809,00.html?portlet=6