Hiring and Equipment Expensing Tax Incentives Enacted Into Law

May 10, 2010

Hiring and Equipment Expensing Tax Incentives Enacted Into Law

Tax reduction incentives key around equipment purchases

by Michael Kastner

The President signed into law HR 2847, the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010. The primary focus of this new law is to provide a tax incentive to employers hiring certain new employees.

The legislation signed into law also includes depreciation incentives for small businesses purchasing equipment and puts an additional $20 billion into highway spending.

Hiring Incentives

Employers who hire unemployed workers this year (after Feb. 3,2010 and before Jan. 1, 2011) may qualify for a 6.2 percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010.

This reduced tax withholding will have no effect on the employee's future Social Security benefits, and employers would still need to withhold the employee's 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee's shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

In addition, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked less than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form which employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010. Revised forms and further details on these two new tax provisions will be posted on IRS.gov during the next few weeks.

Equipment Expensing

In addition to the tax incentive for hiring new employee this law extends the expande and accelerated expensing rules of 2008 and 2009. The Section 179 expensing limits will be increased from $125,000 to $250,000 for 2010. This means that businesses can write-off up to $250,000 of qualified property during the 2010 tax year. Note that this is subject to a phase-out if a business has capital expenditures exceeding $800,000.

Section 179 of the IRS tax code allows businesses to deduct the full purchase pric of qualifying equipment purchased or financed during the tax year. The deduction begins to phase out dollar-for-dollar after $800,000.

Highway Funding and Infrastructure Spending

The authority for highway funding, which was scheduled to expire shortly, was extended to the end of the calendar year by this law and almost $20 billion was transferred into the Highway Trust Fund to keep it solvent until next year. Highway funding had been operating through a series of short-term resolutions since expiration of the six-year funding law at the end of last September.

In addition to securing highway spending, the new law enables additional infrastructure spending, by amending the Build America Bonds program in a manner that will make it easier to raise funds. The funds raised by these bonds are meant to encourage job creation by expanding infrastructure investment in schools and clean energy projects.

The President's Remarks

In signing the bill, President Obama stated, " ... While this jobs bill is absolutely necessary, it's by no means enough. There's a lot more that we're going to need to do to spur hiring in the private sector and bring about full economic recovery - from helping creditworthy small businesses to get the loans that they need to expand, to offering incentives to make homes and businesses more energy efficient, to investing in infrastructure so we can put Americans to work doing the work that America needs done."

Michael Kastner is Senior Director of Governmental Activities for the National Truck Equipment Association. The Association's website is www.NTEA.com.

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Hiring and Equipment Expensing Tax Incentives Enacted Into Law