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On March 18, 2010, President Obama signed the Hiring Incentive to Restore Employment Act (HIRE Act), also referred to as the Jobs Bill. The Act offers tax incentives to employers who hire and retain workers, and extends the increased small-business expensing limits under Section 179. The HIRE Act provides for employer tax credits totaling $18 billion, in addition to $20 billion available in funding for highway and transit programs. The Act is paid for primarily through new information reporting requirements, withholding requirements, and penalties to curb abuses of offshore financial accounts, and a delayed effective date for the worldwide interest allocation election.

Payroll Tax Holiday. To help stimulate the hiring of workers by the private sector, the bill grants private-sector employers an exemption for their 6.2 percent Social Security (FICA) payroll contribution for every new employee hired after February 3, 2010, and before January 1, 2011. Other requirements that must be met are: the employee must certify that he/she was employed for no more than 40 hours during the 60 day period ending on the date they begin the new employment, the employee was not hired to replace another employee for reasons other than voluntary or for-cause termination, and the employee is not related to the employer.

A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800 – the maximum amount of wages subject to Social Security taxes – by the end of the year.

Starting March 19, 2010, the exemption will be applied to wages. To ease IRS implementation of the payroll tax exemption, the allowable exemptions from payroll taxes for the first calendar quarter of 2010 under the HIRE Act will be treated as an advance payment of taxes owed for the second calendar quarter.

Employers who elect to take advantage of the payroll tax holiday and who also are eligible for the Work Opportunity Tax Credit (WOTC) must forgo the WOTC on any wages paid during the one-year period beginning on the employee’s hiring date. Employers may elect not to have the payroll tax forgiveness apply.

Business Retention Credit. The Act increases the general business credit under Section 38(b) by the lesser of $1,000 or 6.2 percent of the wages paid by the employer over 52 consecutive weeks for each worker that qualifies for the payroll tax exemption, is employed on any date during the taxable year, and is paid wages during the last 26 weeks of that 52-week period equal to at least 80 percent of wages for the first 26 weeks of the period. Workers hired after the date of introduction of the legislation (February 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of the new law's enactment receive the exemption for payroll taxes.

Extension of Enhanced Small Business Expensing (Section 179). The new law gives a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009.

Direct payment option for certain tax credit bonds. State and local governments have the ability to issue special purpose tax credit bonds for school construction, energy conservation and renewable energy. The federal government subsidizes these tax credit bonds by providing investors in these bonds with a federal tax credit in place of interest that would otherwise be payable on the bond. In lieu of providing investors with federal tax credits, the new law allows issuers of qualified school construction bonds, qualified zone academy bonds, clean renewable energy bonds, and qualified energy conservation bonds to elect to receive a direct payment from the federal government equal to the amount of the federal tax credit that would otherwise be provided for these bonds.

Revenue offsets. To pay for the tax incentives, the Act includes revenue offsets consisting of: (1) a comprehensive set of measures to reduce offshore noncompliance by giving IRS new administrative tools to detect, deter and discourage offshore tax abuses; and (2) a three-year delay (through 2020) of implementation of worldwide allocation of interest—a liberalized rule for allocating interest expense between U.S. sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation.

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