Tax Law



Payroll Tax Forgiveness for Hiring Unemployed Workers


On February 24, the Senate, 70-28, passed Senate Amendment 3310, adopting the text of H.R. 2847, the Hiring Incentives to Restore Employment Act, a bill to help businesses hire and retain new employees. The President signed the bill into law on March 18, 2010. The Act features a $13 billion tax credit to encourage businesses to hire workers who have been unemployed for at least 60 days.

The Act provides relief from the employer share of old age, survivors, and disability insurance (OASDI) taxes on wages paid by a qualified employer with respect to certain employment. Covered employment under the Act is limited to service performed by a qualified individual: (1) in a trade or business of a qualified employer, or (2) in furtherance of the activities related to the purpose or function constituting the basis of the employer’s exemption under Code Section 501 (in the case of a qualified employer that is exempt from tax under Code Section 501(a)). A qualified individual under the Act is any individual who: (1) begins work for a qualified employer after February 3, 2010, and before January 1, 2011; (2) certifies by signed affidavit (under penalties of perjury) that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment begins; (3) is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and (4) is not a related party (as defined under rules similar to Code Section 51(i)) of the employer.

A qualified employer under the Act is any employer other than the United States, any state, any local government, or any instrumentality thereof, but would include any employer that is a public higher education institution (as defined in §101(b) of the Higher Education Act of 1965). A qualified employer could elect to not have payroll tax forgiveness apply under procedures as required by the Secretary of the Treasury.

Under the provision, a qualified employer could not receive the Code Section 51 work opportunity tax credit on any wages paid to a qualified individual during the one-year period beginning on the hiring date of such individual, if those wages qualify the employer for payroll tax forgiveness under this provision unless the employer makes an election not to have payroll tax forgiveness apply with respect to that individual.

In the Act, the amount of the reduction in affected taxes due for wages paid in the first calendar quarter of 2010 is treated as a payment against the taxes otherwise due from the qualified employer for the second calendar quarter of 2010 which is made on the date that such taxes are due.

The Act, in addition, provides relief from railroad retirement taxes.

Effective for wages paid beginning on March 19, 2010 (the day after the date of enactment) and ending on December 31, 2010.


Business Credit for Retention of Certain Newly Hired Individuals in 2010


The Act provides that an employer’s general business credit under Code Section 38(b) is increased by the lesser of $1,000 or 6.2% of Section 3401(a) wages paid to each retained worker who is a qualified individual (see discussion of Act §101, above) who: (1) is employed by the employer on any date during the taxable year; (2) continues to be employed by the employer for a period of not less than 52 consecutive weeks; and (3) receives wages for such employment during the last 26 weeks of such period that are least 80% of such wages during the first 26 weeks of such period.

The Act permits workers subject to the railroad retirement tax under Section 3221 to be qualified individuals. The Act defines wages with reference to Section 3401(a).

Under the Act, the portion of the general business credit attributable to the retention credit may not be carried back to a taxable year that begins prior to March 18, 2010 (the date of enactment of this provision).

The Act provides that the U.S. Treasury will reimburse any U.S. possession for granting the credit under a mirror code system.

Effective for taxable years ending after March 18, 2010 (the date of enactment).