President Obama signed into law The 2010 HIRE Act on March 18th, 2010

This Act provides relief from the employer share of social security taxes for wages paid by employers that hire unemployed workers. The relief applies to wages paid beginning on the day after date of enactment (March 19) and ending on Dec. 31, 2010.  The Act also includes a credit for retaining these employees and a one year extension of the section 179 deduction limit at $250,000.

Payroll Tax Holiday
Following are some important points regarding the payroll tax holiday:

• The payroll tax holiday applies only to the 6.2% OASDI portion of the employer’s tax. It doesn’t apply to the 1.45% Medicare (HI) portion of the employer’s tax, nor to any part of the employee’s tax. It also doesn’t apply to the self-employment tax paid by self-employed individuals.
• There’s no limit on the total amount of an employer’s OASDI tax that may be forgiven under this provision. However, the amount of tax forgiven for any employee can’t exceed $6,621.60, because the OASDI tax applies to only the first $106,800 of wages paid in 2010 ($106,800 × 6.2% = $6,621.60).
• An employee need not work for a minimum number of hours in order for the employer to qualify for the payroll tax holiday. Thus, the holiday is available for wages paid to part-time employees.
• The payroll tax holiday ends for wages paid after Dec. 31, 2010. Thus, hiring an unemployed worker earlier in the year will increase the tax saving.

To qualify, the new hire must be a “qualified individual,” defined as an individual who:

• Begins employment with a qualified employer after Feb. 3, 2010, and before Jan. 1, 2011 (Although a qualified employee who begins work after Feb. 3, 2010 can be eligible for the payroll tax holiday, the employer’s OASDI tax will be forgiven only for the wages paid after March 18),
• Certifies by signed affidavit, under penalties of perjury, that he hasn’t been employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the qualified employer,
• Isn’t employed to replace another employee of the qualified employer unless that other employee separated from employment voluntarily or for cause,
• Isn’t related to the qualified employer.

Section 179 Expanded
The section 179 limitation of $250,000 that applied to 2009 is now applicable for 2010.  As a result, a business meeting various requirements can expense up to $250,000 of qualified asset additions rather than depreciate them.

New Up-to-$1,000 Credit for Each “Retained Worker”
The Act also provides an up-to-$1,000 credit for “retained workers.” A retained worker is defined as any qualified individual, as defined above for purposes of the payroll tax holiday: 

• Who was employed by the taxpayer on any date during the tax year, 
• Who was so employed by the taxpayer for a period of not less than 52 consecutive weeks, and 
• Whose wages for that employment during the last 26 weeks of the period equaled at least 80% of the wages for the first 26 weeks of that period.

The amount of the credit is determined for each retained worker as the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week-period.  Thus, if a retained worker’s wages during the 52-consecutive-week-period exceed $16,129.03, the increase to the current year business credit for that retained worker will be $1,000.

For an employer using the calendar year as its tax year, the increase to the current year business credit will be claimed on the employer’s 2011 tax return.

If you are a business owner, there are a few new tax credits available this year that can add up to some real substantial savings.  These credits include the federal HIRE credit, the federal small business health insurance credit, and the Indiana New Employer Tax Credit.  Here are a few key questions that can help determine if any of these credits apply to your business:

• Have you hired anyone since February 3rd, including part-timers or interns, who hadn’t worked more than 40 hours in the 60 days prior to their hiring?
• Do you pay for 50% or more of your employees’ health insurance premiums?
• Are you a new Indiana business starting in 2010?
• Will you be expanding the operation of your business location in Indiana, resulting in at least 10 new employees during 2010?

If you can answer yes to any of these questions, then one of these credits may be available to you.  If you are considering hiring or offering health insurance to your employees, perhaps these credits will be an additional incentive in doing so.  These credits could result in some substantial savings.  For instance, if you hired a new employee on March 1st at $60,000 salary who hadn’t worked in 2010, your company could save over $3,000 in 2010 for this one hire with the HIRE credit.

If you think one of these credits could be available to you or you would like to learn more about them, contact one of our business consultants.  Or if you are wondering about a credit on a recent purchase for your individual tax return, we are always available to answer questions and proactively plan throughout the year as it applies to your situation(s) so that you can maximize your cash and minimize your tax bill.

The “2009 Worker Act” extends the first time home buyers credit to home purchases made before May 1, 2010. The credit is the lesser of $8,000 or 10 percent of the home’s purchase price. By May 1, 2010, it is necessary to have a binding contract on the property; the property must be closed by July 1, 2010.

The first time homebuyer credit phases out for taxpayers with modified adjusted gross income in excess of $75,000 ($150,000 for joint filers). The phase-out is complete when modified adjusted gross income reaches $95,000 ($170,000 for a joint return).

Long-time homeowners may qualify for a smaller credit when replacing their property. The qualification for the long-time homeowner is anyone who has owned and used the same residence as principal residence for any period of five consecutive years during the previous eight-year period. The amount of the credit is the lesser of $6,500 or 10 percent of the purchase price. The effective beginning date is November 6, 2009 and ends on May 1, 2010 with a purchase contract. The property close by July 1, 2010.

The credit begins to phase out for taxpayers with modified adjusted gross income of $125,000, or $225,000 for married taxpayers filing joint returns, effective for purchases made after November 6, 2009. The credit is completely phased out for taxpayers with modified adjusted gross income of $145,000 or $245,000 for married couples filing joint returns.

No first-time homebuyer credit is allowed if the purchase price of the principal residence is greater than $800,000.

Be sure to contact Murphy CPA Group if you have questions.