By Mark E. Battersby
The 2010 Hiring Incentives to Restore Employment (HIRE) Act, which was recently signed into law, includes a whopping $17.6 billion in tax breaks for businesses, while pumping an additional $20 billion into highway and transit programs. The “Hire Now Tax Cut” combines payroll forgiveness for Social Security Taxes paid on qualified new hires, along with a tax credit for then keeping the new hire on the payroll for at least 52 consecutive weeks.
In addition to the hiring tax incentives, the new law extends a tax break for marine fabricators and other small businesses that buy new equipment. Another section of the bill expands an initiative to help state and local governments finance infrastructure programs just in time for the construction season.
The heart of the HIRE Act is, in essence, a tax incentive to hire new workers from the ranks of the unemployed. The HIRE Act contains an exemption from Social Security payroll taxes for every worker hired after Feb. 3, 2010, and before Jan. 1, 2011, who has been unemployed for at least 60 days. However, only wages paid after the March 19 enactment date qualify for the payroll tax exemption.
While there is no minimum weekly number of hours that the new employee must work for the marine canvas business in order to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven, in reality, the maximum value of the credit would be equal to 6.2 percent of wages up to $106,800, which is the Federal Insurance Contributions Act wage cap, generating a maximum value of the incentive of $6,621 for any “qualified employee.”
However, the payroll tax holiday applies only to the 6.2 percent Social Security portion of the employer’s tax. It doesn’t apply to the 1.45 percent Medicare portion of the employer’s payroll tax burden, nor to any part of the employee’s tax. It also doesn’t affect the self-employment tax paid by self-employed marine fabricators and other business owners or professionals.
Since the benefits to the employer are tied only to 6.2 percent of any salary paid, a qualified worker may be hired for any number of hours, full- or part-time. No minimum or maximum number of hours is required, although some coordination with employees with multiple jobs is required since prior unemployment must be shown.
The HIRE Act created an additional $1,000 income tax credit for every new employee retained for 52 weeks, to be taken on the employer’s 2011 income tax return. The “6.2 percent of wages paid by the taxpayer” language was added to the HIRE Act to prevent any employee from qualifying for the full $1,000 credit for only minimal part-time work. Based upon the 6.2 percent cap, any newly hired employee who earns more than $16,129 during the 52 consecutive-week period would entitle his or her employer for the full $1,000 retained worker credit.
The retained worker credit will generally be taken on the employer’s 2011 income tax return because of the 52 consecutive-week prerequisite. The new hire must stay on the job for at least the 52 consecutive-week period to entitle his or her employer to the retained worker business credit. If, for example, the new hire voluntarily leaves after 50 consecutive weeks for a different job, the employer is not entitled to any portion of the credit for that employee.
The newly passed HIRE Act extends the 2008 and 2009 expensing thresholds so that marine fabrication businesses can write off up to $250,000 of certain capital expenditures—subject to a phase-out once expenditures exceed $800,000—in 2010 in lieu of depreciating those costs over time. Qualifying property is defined as depreciable tangible personal property purchased for use in the active conduct of a trade or business, including “off-the-shelf” computer software placed in service in tax years beginning before 2011.
Although limited to small businesses, thanks to the $800,000 ceiling, the so-called “Section 179” expensing is available for both new and used property. And, don’t forget that Section 179 expensing is keyed to the marine fabrication operation’s tax year, rather than the 2010 calendar. The extension applies to purchases made in tax years beginning after Dec. 31, 2009, and before Jan. 1, 2011, giving some fiscal year canvas and upholstery businesses well into 2011 to take advantage of the HIRE Act’s one-year expensing extension.
On the downside, someone will have to eventually reimburse the already troubled Social Security Administration for the lost revenue. There is also the prediction the tax breaks may generate only 250,000 jobs in 2010—just a small fraction of the 8.4 million jobs lost since the recession began. Will you and your marine fabrication business be among those who reap the savings under the HIRE Act?