On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment Act, known as the “HIRE Act” into law. The HIRE Act contains a number of provisions related to disclosure of foreign assets, a topic that has recently received a lot of focus by the Internal Revenue Service. The most touted provisions of the law, however, are designed to encourage business investment and hiring.
For 2010, the HIRE Act increases the amount a business may expense under Internal Revenue Code Section 179 to $250,000. This doubles the 2009 limit of $125,000. Section 179 allows a business to deduct, in the year of purchase, the cost of certain equipment purchases that would normally be depreciated over the life of the assets. The $250,000 limitation is reduced, dollar for dollar (but not below zero), by the amount which purchases exceed $800,000.
For businesses that hire new workers that have been unemployed for at least 60 days before hiring, wages paid between March 19, 2010 and December 31, 2010 are effectively exempt from the employer portion of the social security tax on wages. Since the thrust of the HIRE Act is creating new jobs, the exemption does not apply to an employee hired to replace another worker unless the worker was terminated for cause or voluntarily resigned. Employers are still required to withhold, and pay over to the IRS, the 6.2% employee portion of social security taxes and income taxes.
As an additional incentive, for those new workers retained at least one year, there is an increase in the employer’s general business credit of up to $1,000.
The IRS has posted resources and forms to assist employers who seek to take advantage of the tax exemption. The IRS announced the parameters of the new law on March 18. On April 7 the IRS issued guidance on claiming the exemption and introduced a new form W-11, which is an affidavit required to be signed by qualified employees. A summary of Frequently Asked Questions is also available on the IRS website. An updated and revised Form 941, Employer’s Quarterly Federal Tax Return, will also soon be available, and is now posted in draft form.