The Hiring Incentives to Restore Employment (HIRE) Act, also known as the Hire Now Tax Cut, looks to be a “game changer” for mid-market and smaller companies, which now can take advantage of the broadest hiring incentive program ever.
Part of an $18 billion jobs bill passed by Congress and signed by President Barack Obama on March 18, the HIRE Act is designed to help spur hiring by American businesses with employers saving as much as $7,621 per qualified employee (an average of $750 for hourly employees and $1,500 for salaried employees).
Unlike many other tax incentive programs that require business operations in certain zones or hiring from disadvantaged targeted groups, the HIRE Act has a clear and simple set of qualification criteria and administrative rules. It also offers immediate and certain cash flow benefits to the business. Businesses of any size and any industry can participate.
The tax incentive includes two parts: A 6.2 percent Social Security tax exemption for qualified employees hired between February 3 and December 31 this year. The new employee must have worked less than 41 total hours during the 60 days prior to the first day of work and sign an affidavit verifying this. The earlier in the year a new employee is hired, the greater the savings, and there is no cap or limit on the total amount of benefits that can be claimed. The other incentive is a general business credit up to $1,000 for each employee retained for 52 weeks.
There also is no minimum age for employees under the HIRE Act. High school summer hires and interns are eligible. The program does not require the new employee be employed for a specific number of hours or length of time. A few restrictions do apply. First employers can’t claim both the Work Opportunity Tax Credit (WOTC) and the Social Security exemption (but they can take the WOTC and the $1,000 retention credit.) Also, relatives of the business owner(s) don’t qualify and neither do employees that replace other employees fired without a legitimate reason.
Usually these types of tax credit programs are reserved for big companies with dedicated tax and human resources departments. Companies in the Fortune 500 have been tracking the HIRE Act since before it was signed, but small businesses, many with even tighter cash flows, are finally getting some relief and have the most potential to pull us out of the recession as they grow.
The impact of small to mid-sized companies in this country cannot be overstated. In 2008, there were 29.6 million total businesses in the United States, according to the U.S. Small Business Administration Office of Advocacy. A whopping 99.9 percent of those businesses had fewer than 500 employees, and over the past 15 years, small businesses have generated 64 percent of all new jobs.
At the same time, technology is advancing quickly in the tax credit sector, which is good for small businesses as emerging options promise to help cut costs and take the burden off of overworked staffs through automation. Non-governmental non-profit organizations and even public universities are covered for the first time by the new law and should benefit as well – all of which is great news for the economy.
Companies that are hiring every month can save tens of thousands to hundreds of thousands of dollars in payroll and income taxes. Thanks to the high unemployment rate, as many as 40 to 60 percent of new hires will qualify. Just be careful to focus on the screening and documentation process as your business moves forward.
It’s easy to underestimate both the value and complexity of the HIRE Act. Make sure you get every dollar coming to you. The big companies certainly will.
HIRE Act a ‘Game Changer’ for Small Businesses as They Join Fortune 500 World of Tax Credits