What the HIRE Act Incentives Mean for Hospitality Employers
By Brandon Edwards President, Tax Credit Co. | June 19, 2011
Most business executives don't feel they are getting much out of the federal stimulus initiatives, but hospitality employers are well-positioned to get a disproportionate piece of one such program: the HIRE Act hiring-based tax incentive program. In fact, hotel operators may claim tax benefits of about $750 per qualified hire (and more than half of new hires are likely to qualify).
Listed among a handful of business incentives and unrelated offshore tax compliance regulations, the HIRE Act, which stands for "Hiring Incentives to Restore Employment", is also referred to as the Hire Now Tax Cut. The legislation includes a combination payroll tax exemption and income tax credit program that rewards employers for hiring employees who have been unemployed for most of the previous 60 days.
This program was sponsored by Sens. Charles Schumer and Orrin Hatch and was subsequently signed by President Barack Obama on March 18, 2010. The program is unprecedented in that it provides benefits to companies whether they are profitable or not (including non-profits and public universities), provides immediate cash flow benefits through a payroll tax incentive and rewards both white-collar and blue-collar employers.
Here is how it works:
- Anyone hired from February 3, 2010, who worked less than 41 hours in the 60 days prior to starting work is qualified. Time spent as a student or self-employed individual (either working for their own business or as an independent contractor for another business) should not be included in the calculation of the hours. Also, the employee may qualify even if they were rehired by the same employer.
- The employee must sign the W-11 form attesting to their qualification. The form is then kept for the employer's records since the IRS may request it later on.
- For all qualified employees, there are two benefits for the employer. First, the employer is exempt from paying the 6.2 percent social security tax match for FICA wages paid from March 19, 2010, through the rest of the year. Second, for every qualified employee who is retained for 52 weeks, the employer gets a federal income tax credit of up to $1,000. The retention credit is calculated as the lesser of either $1,000 or 6.2 percent of the total wages over the initial 52-week period, and is available only if the wages from the second 26 weeks of employment are at least 80 percent of those for the first 26 weeks.
- If the employer is taking the WOTC credit (which is another hiring tax incentive that all hotel operators should be screening for), they can claim only the $1,000 retention credit, not the payroll tax exemption.
- The employer may claim both HIRE Act incentives even if they are claiming a 45B credit for the same employee.
- The incentive applies to full-time and part-time employees, but the employer is not permitted to replace someone for the purpose of getting the tax incentive on someone else. Likewise, relatives of the business owner(s) who are hired by the business are not eligible, even if they fall below the 41 hour threshold.
- The employer will file the payroll tax exemption on their 941 payroll tax return starting with the second quarter form, and the retention credit on their 2011 federal income tax return.
Using best practices, roughly 50-70 percent of new hires will qualify. And the average value should fall in the range of $750 per qualified employee. Whether the employer hires 20 per year or 20,000, this is a can't-miss opportunity to cut costs.
It's not too late to capture the credit on qualified employees the employer already has generated this year. The HIRE Act program has no deadline other than the standard statute of limitations on amending payroll and income tax returns (three years), but the employer should not wait too long, as it will be difficult to obtain the required employee signature if he or she is no longer working for them.