HIRE Act

Hire Incentive to Restore Employment

The President recently signed into law the Hire Incentive to Restore Employment Act of 2010.  The key provisions of this bill include:

• Eliminating the 6.2% employer Social Security tax on eligible hires.
• A one-time business tax credit of up to $1,000 for retaining eligible employees for 52 consecutive weeks.

Additional information regarding the bill:

• 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 6.2% employer’s share of Social Security.
• The credit is for eligible employees hired after February 3, 2010, but only wages paid between March 19, 2010 and December 31, 2010 are eligible.
• If a hired qualified worker is on the payroll for 52 consecutive weeks, the employer is then eligible for a non-refundable tax credit of up to $1,000 on their 2011 tax return.
• A new Form 941 will be updated to account for the tax credits beginning with the second quarter form.  First quarter wages and credits will also be reported on the second quarter form.
• Employers can reduce their federal deposit amounts throughout the quarter by the eligible employer Social Security tax amount, or they can wait to claim the credit on their Form 941 return.
• The new hire must sign an affidavit stating that he/she hasn’t been employed for more than 40 hours during the 60 day period ending on the date employment begins.  Employers may create their own version as long as the wording is identical to the Internal Revenue Service version.
• A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or was terminated for cause.
• The tax exemption does apply to an employee who was previously laid off and then rehired by the same or a related employer after the 60 day period.
• The tax exemption does apply to a new employee who was hired to replace a previously laid off employee due to lack of work, again providing this is a qualified employee.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit, the employer must select one benefit or the other for 2010 – no double dipping.

Refund Claim for FICA Taxes Paid on Severance Pay

There have been some recent developments regarding severance pay being recognized as payments which are not for services (but essentially payments for not performing services) and, therefore, not subject to FICA taxes.  Some businesses have filed claims for a refund of FICA taxes from involuntary severance pay.  A few claims have been paid, however, many have simply been held in abeyance, pending resolution of current court cases.
As recently as February 2010, the Western District of Michigan determined that severance payments paid in connection with a reduction in workforce were not “wages” subject to FICA tax.

This issue is very complex and certainly unsettled.  At this time we strongly recommend that you continue to withhold and remit FICA taxes on severance payments.  However, if you have made reductions in your workforce at any time during the past several years, you should discuss the specifics of the reduction with your Smith & Gesteland representative to determine if filing a claim for refund would be appropriate.  The deadline for filing a claim for severance paid during 2006 is April 15, 2010.

COBRA Subsidy - Extended

Congress is putting the finishing touches on extending the 65% COBRA premium subsidy for laid-off workers through December 31, 2010.  The law states that a subsidy-eligible individual must pay 35% of the required premium for COBRA coverage.  Once that amount has been paid, the employer must cover the other 65%.  The employer can then recoup his cost by taking a credit against the employer’s payroll taxes reported on Form 941.
This is only a brief overview of the HIRE Act.  If you have any questions or wish to discuss any items in more detail, please contact us at (608) 836-7500.