Congress Passes Incentives for Hiring Unemployed and Underemployed Individuals

Posted on April 28, 2010


On March 18th of this year, a new law was introduced to encourage the hiring of unemployed or underemployed individuals and thereby boost the U.S. employment rate. The Hiring Incentives to Restore Employment Act (“HIRE”) offers tax incentives to those employers who take on workers unemployed or employed for less than 40 hours per week in a consecutive 60-day period prior to his or her hiring date.

Employers who hire the formerly unemployed and underemployed are entitled to a 6.2% payroll tax exemption. This exemption means that the employer does not have to pay the employer’s 6.2% Social Security tax that would normally be imposed on the newly hired employee’s wages paid between March 19, 2010 and December 31, 2010.  According to the IRS, “this reduced tax withholding will have no effect on the employee’s future Social Security benefits.” It is important to note that these newly hired employees will not be relieved of the 6.2% Social Security tax they pay on their wages.

Employers who retain those employees for at least one full year, can also claim a new hire retention credit that is the lesser of $1,000 or 6.2% of the new hire’s wages.

Employers may begin claiming this payroll tax exemption as early as the second quarter of 2010, and the IRS has revised Form 941 specifically for these purposes. According to the IRS,  “the new hire retention credit will be claimed on the employer’s 2011 income tax return.”

So, who qualifies for HIRE? Any employer who hires anyone unemployed or underemployed for a consecutive 60-day period prior to his or her hiring date, and that hiring date must fall between February 3, 2010 and December 31, 2010. (Employees must sign an affidavit certifying this unemployment, and it can be found as Form W-11 on the IRS website.)

A company does not have to have experienced lay-offs to benefit from HIRE.  However, a company that has experienced lay-offs may receive the credit for re-hiring employees that were let go more than 60 days before their re-hiring—even if the company is currently taking advantage of the COBRA premium assistance credit with respect to that employee.  New businesses may also take advantage of these incentives if they hire previously unemployed or underemployed workers. Companies may also receive the payroll tax exemption if they hire students and recent graduates who constitute qualified employees and have not worked in the past 60 days.

Not all new hires qualify for the HIRE incentives.  The following hires do not constitute qualified employees for purposes of the HIRE incentives:  family members or relatives; household employees; employees to replace workers who did not leave voluntarily or without cause; and federal, state and local government hires, except for those at colleges and universities. An employer also cannot hire a new employee to fill the space of a worker who was previously let go and claim the HIRE incentives.

To learn more about the HIRE employment tax exemption, please visit the IRS website.

Russell M. Cunningham IV
Cunningham Firm, LLC