What is it?
It is a new piece of legislation signed into law by President Obama in March 2010. The law primarily does two things:
(1) It provides employers exemption from paying the 6.2% employer social security tax for new employees hired between February 3 and December 30, 2010.
(2) It provides employers with a tax credit up to $1,000 or 6.2% of the new employee’s wage (whichever is less) for workers hired after February 3, 2010, provided that they hire for a minimum of 52 consecutive weeks.
What are the rules and guidelines for the new law?
Social Security Tax Exemption
- The new employee must have worked 40 hours or less, 60 days before employment. This means that if you quit one job to start working at another, you do not qualify. The bill is aimed to help the unemployed.
- The tax relief applies only to wages up to $106,800. If someone earns more than $106,800, only the first $106,800 will be exempt from the social security tax.
- Employers cannot fire a worker to replace him or her with someone who qualifies for the tax break.
Tax Credit
- The new employee must sign an affidavit that he or she has not worked anywhere else for more than 40 hours 60 days prior to being hired.
- Employers cannot fire a worker to replace them with someone who qualifies for the tax break.
- The employee’s wages during the last 26 weeks must be at least 80% of what the employee made for the first 26 weeks.
- The employer cannot certify for tax credit under the HIRE Act and the Work Opportunity Tax Credit (WOTC)[1] —employers must choose one or the other.
How does a small business benefit from the law?
The HIRE Act was signed into law to help accelerate recovery from the recession by offering employers incentives in hopes that it reduces our unemployment rate. Employers would see a reduction in payroll expenses.
Conclusion
There are government incentives available to encourage entrepreneurs to start and maintain businesses. The unemployment level has a direct correlation with small business success—approximately 50% of private sector employment comes from small businesses. Being aware of government initiatives may prove beneficial for your business—understanding government legislation is important to you minding your business effectively.
Additional Information
http://www.govtrack.us/congress/bill.xpd?bill=h111-3200
http://www.doleta.gov/business/Incentives/opptax/
About The Author
Jowanna Parris-Daley owns and operates jowanna inc™, a small business consulting company that offers services including business plan writing, e-consulting, website design and technology services for startup businesses.
[1] The WOTC is a bill that offers tax credits to employers if they hire individuals from disadvantaged groups (as defined by the law).
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