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On March 18, 2010, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act into law. The HIRE Act was designed to encourage employers to hire and retain new workers. Specifically, the HIRE Act created two new tax benefits that will encourage employers to hire new employees, while offsetting some of the payroll costs associated with new employees.

The benefits
Employers who hire unemployed or underemployed employees between February 3, 2010, and January 1, 2011, may qualify for a 6.2 percent payroll tax incentive. Typically, employers are required to pay an employer share of Social Security tax and withhold an employee share of Social Security tax as well. The HIRE Act will exempt employers from paying their 6.2 percent share of Social Security tax on wages paid to eligible workers from March 19, 2010, through December 31, 2010. Employers will still need to withhold Medicare taxes and the employee's 6.2 percent share of Social Security taxes.

In addition to the payroll tax exemption, for each new worker retained for at least 52 consecutive weeks, the employer may claim a general business tax credit. The credit will be 6.2 percent of wages paid to a qualifying employee during the 52 week retention period, up to a maximum $1,000 per qualified worker. The credit will be claimed when employers file 2011 federal income tax returns. Although the credit is not retroactive, it can be carried forward, which will be important since the 52 week retention period will not end for many employers before they file their 2011 returns.

Who is qualified?
Most, but not all, employers are eligible under the HIRE Act to receive both the payroll tax exemption and the retention tax credit. For example, all for-profit businesses, agricultural employers, tax-exempt organizations, and public colleges and universities are eligible. Federal, state and local government entities, as well as household employers, are not eligible.

The Act is designed to stimulate hiring of persons who do not have jobs or steady work. As a result, employers may only reap the HIRE Act tax incentives for new hires that have been unemployed for, or who worked less that a total of 40 hours during, the 60-day period prior to commencing employment. Almost anyone qualifies under the HIRE Act except: (1) family members, (2) employees that are hired to replace another employee, or (3) employees whose work is not in an employer's specific trade or business.