Are New Tax Incentives for Hiring Enough?

The Hiring Incentives to Restore Employment (HIRE) Act, which was signed into law on March 18, 2010, gives employers two new tax breaks for adding to their payroll.  Will this induce you to create jobs?

Tax incentives

The HIRE Act has one incentive for expanding your staff that starts immediately and one that you may be able to claim on your 2011 return:

Immediate payroll tax relief. You won’t owe the employer share of FICA that covers Social Security taxes (6.2% of wages up to $106,800) on wages paid to anyone hired after February 3, 2010, and before January 1, 2011, who has been unemployed for at least 60 days before the start date or who worked fewer than a total of 40 hours during this 60-day period. Employees hired during this period will have to certify to you that they meet this condition.

Relief on 2011 returns. If you retain a worker for at least 52 weeks, you can claim a tax credit of up to $1,000. There is no limit on the number of employees for whom you can claim the credit.

Is this enough?

While these tax incentives are helpful, they are smaller than tax increases taking effect after 2010, especially on business owners in higher income tax brackets in light of changes made by the Patient Protection and Affordable Care Act signed into law on March 23, 2010, and other anticipated tax increases to come.

From a financial perspective, hiring new employees is wise only if their cost, which is generally their wages plus about 15%, at least equals what you expect they can earn for you in terms of productivity and sales. Keep in mind that the Patient Protection and Affordable Care Act penalizes employers with 50 or more full-time employees who fail to provide health coverage, so growing companies may aim to keep their payroll below this critical size. (Next week’s blog covers the Patient Protection and Affordable Care Act.)

5 comments

  1. Michael Neuendorff 19 April, 2010 at 03:15 Reply

    Barbara,
    What if the worker you hire did not previously have the right to work in the last 60 days. The person I’m thinking of hiring just recently got a SS card and permanent resident status. Will I still be eligible for the payroll tax holiday if I hire this person?

  2. Wrestling News 1 September, 2010 at 16:24 Reply

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  3. Antony Strickling 6 April, 2011 at 14:01 Reply

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  4. Arthur Sparks 2 November, 2012 at 07:12 Reply

    Keep in mind that the Patient Protection and Affordable Care Act penalizes employers with 50 or more full-time employees who fail to provide health coverage, so growing companies may aim to keep their payroll below this critical size.

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