New tax incentives for employers: Are they enough?
by Mar 30th 2010 1:30PM
As part of efforts to boost the numbers of Americans with jobs, two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act signed into law by President Obama this month.
Employers who hire previously unemployed workers after Feb. 3, 2010, but before the end of the year may qualify for a 6.2% payroll tax break. The tax break has the effect of exempting employers from their share of Social Security taxes on wages paid to these workers after March 18, 2010 (the date the bill became final). This is good news for employers struggling to meet payroll this year, and Congress hopes the incentive will spur hiring for the spring and summer seasons.
The benefit applies to businesses, agricultural employers, tax-exempt organizations, and public colleges and universities who hire eligible employees. The IRS will require that employers get a statement of eligibility from all new hires. Household employers cannot claim this new tax benefit for household employees such as nannies and maids. Additionally, employers may not claim the tax break for hiring relatives even if they otherwise meet the criteria.
If employers keep those new employees on their payrolls, they may claim an additional tax credit of up to $1,000 per worker when they file their 2011 income tax returns. Credits are appealing to employers because they are dollar for dollar reductions in taxes due.
Employees would still be subject to Social Security withholding from their wages. However, the reduced payroll tax on the employer's side will not have any effect on the employee's future Social Security benefits. Medicare taxes would also still apply for wages on the employer and employee side.
The IRS believes these incentives will help boost the economy. IRS Commissioner Doug Shulman said, in reference to the Act, "These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead."
What do you think? Is it enough to get the economy going again?