How will the HIRE Act affect my business?

The Hiring Incentives to Restore Employment (HIRE) Act has been enacted, in an effort to provide employers with incentives to begin hiring the unemployed.  Its centerpiece is $13 billion in incentives for private sector businesses to boost hiring in 2010.

It has two basic provisions – one for hiring new workers and the other for retaining them.

1. Qualified employers who hire a new employee between February 3, 2010 and Jan 1, 2011 don’t have to pay their share of the payroll tax (the 6.2% FICA/Social Security withholding).  This is effective with the employee’s first paycheck after March 18, 2010.
2. An employer’s general business credit is increased by the lesser of $1,000 or 6.2 percent of salary for each retained worker that satisfies a minimum employment period – not less than 52 weeks – and gets paid consistently, earning at least 80% as much during the last 26 weeks of the period as they earned in the first 26 weeks.

But wait, there’s more.  Here are a few of the additional provisions in the Act.

• Enhanced Section 179 expensing is extended.  For 2009, the maximum Code Sec. 179 deduction was $250,000, and the phase-out limit for qualifying property purchased during the year began at $800,000. First introduced in 2008, enhanced Code Sec. 179 expensing expired on December 31, 2009.   The HIRE Act extends enhanced Code Sec. 179 expensing, at the $250,000/$800,000 threshold levels, through December 31, 2010.
• Build America Bonds program is enhanced. The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) authorized state and local governments to issue two types of Build America Bonds, one which provides a subsidy through federal tax credits to the bonds’ investors, and another which provides a subsidy through a refundable tax credit paid to state or local governmental issuers. Encouraged by the initial success, Congress included an enhancement in the HIRE Act: an  election for issuers of qualified tax credit bonds to receive a direct payment from the federal government equal to the amount of the federal tax credit otherwise provided for these bonds.
• Foreign account tax compliance is strengthened.   To offset some of the cost of the domestic tax breaks, the HIRE Act generally requires withholding agents to withhold 30 percent of any “withholdable payment” to a foreign financial institution that not agree to comply with new reporting requirements. To avoid this withholding requirement, the financial institution must agree, among other things,  to comply with verification and due diligence procedures with respect to accounts held by U.S. persons or U.S. owned foreign entities, deduct and withhold 30 percent on certain “passthrough” payments to recalcitrant account holders and others, and either obtain from the account holder a waiver to any foreign secrecy laws or close the account if the waiver cannot be obtained within a reasonable time.

To learn more about how the HIRE Act will affect your business, take a look at this summary or contact your accountant.