The Federal HIRE Act, Economic Stimulus Updates, and Healthcare Reform

March 24th, 2010 | Author: Linda Silva

Recent federal legislation can mean tax savings for employers and may have an impact on your business and your payroll activities.

HIRE Act

The Hiring Incentives to Restore Employment (HIRE) Act that was signed into law on March 18, 2010. It provides financial incentives for employers who hire unemployed workers and retain those workers for at least one year. If you are hiring, you could benefit from two provisions in the bill: Social Security Tax Exemption and Business Tax Credit. You can also find information from the IRS at http://www.irs.gov/newsroom/article/0,,id=220326,00.html.

Social Security Tax Exemption

Under the HIRE Act, an employer would be exempt from paying the employer’s share of 2010 Social Security taxes on any previously unemployed individual hired after Feb. 3, 2010, who has not been employed for more than 40 hours in the prior 60-day period. The maximum tax break an employer could gain per employee under this provision would be $6,621, or 6.2 percent of wages paid after March 19, 2010, and before Dec. 31, 2010, up to the $106,800 FICA wage cap. Employers will still need to withhold the employee’s share (6.2 percent) of Social Security taxes as well as any other applicable taxes.

This exemption will not affect the employee’s future Social Security benefits. This law requires employers to get a statement from each eligible new hire certifying that he/she was unemployed during the previous 60 days before beginning work, or that he/she has not worked for more than 40 hours total for another employer during that 60-day period. The IRS is developing a form for employees to use to make this statement.

Business Tax Credit

Employers may also be eligible to receive up to a $1,000 general business tax credit for every qualifying new employee retained for at least 52 consecutive weeks. The worker’s wages during the last 26 weeks must be at least 80 percent of their wages during the first 26 weeks of employment. Employers will claim this tax credit on their 2011 business income tax form.

Economic Stimulus: 2010 Updates

The government’s economic stimulus plan contains changes that can impact your payroll and your taxes. One of the objectives of the plan is to ease the burden of the ongoing recession on workers and employers. To do that, the government has modified and expanded portions of the plan since its inception in early 2009. The Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL) continually update their Websites with any changes to the stimulus plan. The following two provisions have recently been updated: COBRA Subsidy and Making Work Pay Tax Credit.

COBRA Subsidy

At the end of 2009, the president signed the Department of Defense Appropriations Act, 2010. Included in the act is the extension of the eligibility period for the COBRA premium reduction for an additional 2 months (through Feb. 28, 2010, instead of Dec. 31, 2009) and the maximum period for receiving the subsidy for an additional 6 months (from 9 to 15 months). Then, on March 2, 2010, the president signed the Temporary Extension Act of 2010, which extends the eligibility period again for the COBRA premium reduction from Feb. 28, 2010, to March 31, 2010.

Both the DOL and the IRS have released important information you need to know about these changes. The DOL has helpful fact sheets, videos, and other critical information about the COBRA subsidy for employees and employers posted at www.dol.gov/cobra. Note that in addition to understanding the changes, plan administrators must notify certain current and former participants and beneficiaries about the premium reduction. The DOL created model notices to help plans and individuals comply with notification. These are updated and available on the DOL website.

The IRS has modified a few tax documents relevant to the COBRA subsidy legislation. For employers who file an annual employment tax return (Form 943 or Form 944) and who make COBRA premium assistance payments, the IRS has updated the 2009 forms to allow you to take a credit for these payments.

Making Work Pay Tax Credit

Although it was released in 2009, the Making Work Pay Tax Credit is also available for tax year 2010. This credit is 6.2 percent of a taxpayer’s earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for other taxpayers, and it is phased out for higher income taxpayers. The Making Work Pay Tax Credit continues to be issued through employer payroll taxes.

For tax year 2010, the IRS has issued new withholding tables. Intuit released these new tax tables in Payroll Update 21001 on Dec. 17, 2009, so make sure you are using these updated tables to process payroll.

If you or your employees have questions or changes to their withholding, these IRS tools may be helpful:

The Tax Withholding Calculator reflects the latest withholding tables effective Jan. 1, 2010.
If one of your employees decides to make adjustments to their withholdings, they will need to submit an updated Form W-4.

Healthcare Reform

While many healthcare reform changes will phase in over the next several years, several changes in the next year appear to be important for small business payroll:

A new tax credit effective this year could help small businesses provide health insurance coverage for their employees.
Changes to the employee’s Form W-2 may be required to support healthcare reform requirements.
Individual contributions to flexible spending accounts for medical expenses may be limited to $2,500 per year starting Jan. 1, 2011.

Source: QuickBooks Payroll Bulletin, March 24, 2010

Be Sociable, Share!

Tweet