Tax Break for SMBs with the HIRE Act

Hard to believe that Congress actually did something to help business out. Even if it’s just a little bone to the business community, Congress passed the Hiring Incentives to Restore Employment (HIRE) Act which gives SMB owners two relatively minor tax breaks, but every little bit helps in these hard times where many of us are in survival mode rather than expansion. But, with every tax break, there are conditions that have to be met. The idea is that the SMB fill a present position or create a new position in their organization and that they fill it with an employee that was not employed for more than forty hours during the 60 days prior to the day the employment commenced. The previously employed worker is under the regulations and code called a “qualified employee”.

So where is the tax break? The more immediate tax break for the employer is that they don\’t have to pay their share of the social security tax on the wages paid to the qualified employee. The bang for the buck is the employer can keep the 6.2% share that they would have paid. This tax incentive is effective for any wages which are paid from March 19 through the end of 2010. The qualified employee must sign a Form W-11 which is simply an affidavit that the employee is truly a qualified employee under penalty of perjury. The other form that impacts this break is the quarterly Form 941. The employer then simply doesn’t have to pay it on the Form 941 and saves the money.

The second tax break that the SMB has to wait to take on their 2010 tax return (Form 944-Employer’s Annual Federal Tax Return) is a $1,000 tax credit for each of the qualified employees which the employer retains for at least 52 consecutive weeks and the wages of the employee cannot be significantly reduced during the second half of the tax year. This is being referred to many as the New Hire Retention Credit and still can be a powerful tool when deciding whether or not to hire a new employee.

With any tax regulation, there are some traps. Qualified employees do not include household employers nor can the qualified employee be a related to the owner of the business. And one other quick caveat is that the qualified employee position can’t be a position that simply replaces a position unless the previous employee left voluntarily, for cause or even downsizing by the employee.

So hopefully, go out and hire and see two tax benefits for your business.

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