OUR THOUGHTS ON:

Senate Sends HIRE Bill to President's Desk

Tax

By Martin DiGiovine

The U.S. Senate approved the final version of the Hiring Incentives to Restore Employment (HIRE) Bill, on March 17, 2010. The Jobs bill, as it has been called in the media, provides incentives for employers to hire and retain new workers. The Jobs bill also extends the Section 179 expensing provisions introduced in 2008. The cost of the Jobs bill will be partially paid for by income generated by increasing foreign account disclosure requirements.

Payroll Tax Exemption

Under the HIRE Act, a qualified employer’s portion of Social Security tax liability is waived with respect to qualified new worker’s wages paid from March 17, 2010 (the date of enactment) through December 31, 2010. Employers will remain liable for the Medicare portion of FICA taxes on qualifying new employees.

For the first calendar quarter of 2010, payroll tax forgiveness would not apply directly to wages. Instead, the House inserted an amendment to the bill that will treat the first quarter’s exemption as a credit against the employer’s OASDI liability for the second quarter of 2010.

According to the Joint Committee on Taxation, an employer may qualify for the incentive by rehiring workers who had previously been laid off. Also, a qualifying new employee may only replace an existing employee who voluntarily terminates or is fired for cause. In addition, employees who are related to the employer or who directly or indirectly own more than 50 percent of the business are not eligible. The new provision generally applies to both full and part time employers.

The U.S., any state or political subdivision thereof, except for state colleges and universities, are not qualified employers for purposes of payroll tax forgiveness. Qualified employers may elect to opt out of payroll tax forgiveness. An employer may elect to opt out of payroll tax forgiveness if the new employee also qualifies for the Work Opportunity Tax Credit included in the American Recovery and Reinvestment Act of 2009.

In order to prevent these incentives from further underfunding the Social Security system, the legislation transfers amounts equal to payroll tax forgiveness to the Federal Old-Age and Survivors Trust Fund and the Federal Insurance Survivors Fund.

Retained Worker Business Credit

For each new worker who qualifies for payroll tax forgiveness that remains on the payroll for at least 52 consecutive weeks, employers may be eligible for a tax credit of the lesser of 6.2 percent of wages or $1,000. A qualifying new employee who makes at least $16,129 (1000/.062=$16,129) during the 52 week period would qualify their employer for the full $1,000 credit.

The credit amount would be added to the Section 38(b) business tax credit. To prevent abuse by employers, at least 80% of the wages earned by qualified emloyees during the first 26 weeks of employment must be earned in the second 26 weeks of employment.

Foreign Accounts Disclosure

The above tax breaks are partially paid for by increasing the foreign account disclosure requirements of taxpayers.

The legislation requires withholding agents to withhold 30 percent of any withholdable payment to a foreign financial institution that does not agree to comply with the new reporting requirements. Foreign financial institutions may avoid these withholding rules if they agree to disclose information pertaining to accounts held by U.S. persons and entities. They must also agree to close those accounts if a waiver to foreign secrecy laws is not obtained within a reasonable time.

The legislation also requires disclosure of foreign financial assets to be included with a taxpayer’s return. The account holder must provide the account number and name of the financial institution maintaining the account and the maximum value of the account during the tax year. In the case of any stock or security, the holder must provide the name and address of the issuer and the maximum value of the asset during the year.

Unless they can show reasonable cause, taxpayers who fail to make these disclosures will be subject to penalties ranging from $10,000 to $50,000. Taxpayers with foreign financial assets whose aggregate value is less than $50,000 are exempt from the disclosure requirements. However, the taxpayer must provide sufficient information to demonstrate the value of their foreign financial assets, or they will be presumed to be in excess of $50,000. Generally these new rules are scheduled to take effect in 2011.

Tax Extenders

The HIRE bill includes an extension of the Code Section 179 deduction through December 31, 2010. The deduction remains at $250,000 and the phase-out limit for qualifying property purchased during the year begins at $800,000. Extension of bonus depreciation rules is not included in this legislation.

Though this is the only tax extender in the Jobs bill, legislation is currently pending which includes an additional $140 billion in extensions of popular tax incentives for individuals and businesses including the Research Tax Credit. Congress is also expected to put forth legislation in the near future which extends the estate tax at the 2009 levels through December 31, 2010. It is still not certain whether the estate tax will be made retroactive to January 1, 2010. 

Schneider Downs provides accounting, tax, and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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