On March 18, 2010, President Barack Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. This law provides a payroll tax holiday and up to a $1,000 credit for employers who hire unemployed workers. The purpose of the bill is to encourage employers to hire unemployed workers by providing a tax break in the form of an exemption from the matching portion of FICA, currently 6.2 percent. For any employee hired from February 3, 2010 through the end of 2010 who was unemployed for at least 60 days prior to being hired, an employer would not need to match FICA withholdings for any wages earned after March 18, 2010. Note that the employer would still withhold the employee's portion of FICA for 2010 but there would be no matching requirement in 2010. The matching contributions would begin January 1, 2011. Also note, HIRE does not alleviate an employer's obligation to match the 1.45 percent withheld for Medicare.
An employer is eligible for the tax holiday provided that the individual was hired after February 2, 2010, and provided that the individual does not replace someone who performed the same job unless the prior employee resigned or was terminated for cause. There is no definition of cause; one might certainly argue that poor performance constitutes cause, but the issue is not well settled. Until there is further guidance, a more conservative definition of cause is advisable — insubordination, failure to attend work, embezzlement, violation of company policy, etc. — as opposed to failure to make quota and other similar types of offenses.
Provided that the other criteria have been met, there is no minimum number of weekly hours that the hired individual needs to have worked to be considered eligible. For a hiring to qualify under HIRE, however, the hired individual must sign an affidavit, under penalties of perjury, stating that he meets the specific eligibility criterion - that he or she has not been employed for more than 40 hours in the 60 days preceding the start of employment. (A link to IRS form affadavit is below.)
Additionally, there is a non-refundable tax credit of $1,000 to employers for any of the above employees who remain on the payroll for 52 weeks (to be taken on the 2011 tax return); to be eligible for this credit, the employee's pay in the second 26-week period must be at least 80 percent of the pay in the first 26-week period.
Finally, an employee cannot use the tax break provided under HIRE and the Work Opportunity Tax Credit. (The Work Opportunity Tax Credit is a federal tax credit incentive that Congress provides to private-sector businesses for hiring individuals from12 target groups who have consistently faced significant barriers to employment.) If an individual is hired who meets both, then the company will need to select one tax credit or the other.