Does the new Payroll Tax Forgiveness for Hiring Unemployment Workers add up to much?

The new programs are not expected to have a significant impact on hiring but it is important that employers are aware of the benefits and how they can obtain them.

On March 18, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. It provides an immediate increase in cash flow and also provides employers with a Retained Worker Business Credit, (a retention bonus) for individuals hired after February 3, 2010 who have remained on the employer’s payroll for at least 52 consecutive weeks.

Qualified new hires through to January 2011, cannot be employed in the 60 days prior to starting, not employed to replace a terminated employee unless the former employee voluntarily separated or was separated for cause and cannot be related to the employer. Previously laid off workers now rehired qualify for the tax forgiveness provision.

Under the new law, employers will be exempt from paying the 6.2 percent Old-Age, Survivors, and Disability Insurance (OASDI) portion of Social Security tax on wages paid to qualified individuals. The tax will not apply on wages paid to qualified individuals for employment after March 18, 2010, and prior to January 1, 2011.

In addition, the HIRE Act says employers can earn a tax credit equal to 6.2% of the new hire’s salary, up to $1,000, for each new hire that remains on the payroll for 52 consecutive weeks. Employers can take this new credit on their 2011 tax return.

To qualify for this retention tax credit, employers must pay at least 80% of the wages during the second half of the 52-week period that were paid during the first half (26 weeks) of that period.