Article courtesy of the Las Cruces Bulletin
By Gabriel Vasquez
The HIRE Act and Work Opportunity Tax Credit contain provisions that allow business owners to recoup part of their labor force investment and should not be overlooked by local business owners trying to maximize their bottom line.
That was the message delivered by David Estrada, senior manager for Moss Adams LLP, during the February Business on the Border forum hosted by the Mesilla Valley Economic Development Alliance Tuesday, Feb. 1, at Lorenzo’s de Mesilla.
“The HIRE Act was enacted last year by President Obama and signed into law on March 18, 2010,” Estrada said. “As part of that, businesses now qualify for two new hiring and retention incentives.”
The HIRE Act
The Obama HIRE (Hiring Incentives to Restore Employment) Act has two new tax benefits for employers that hire workers who were previously unemployed or were only working part-time.
Employers who hired unemployed workers last year – after Feb. 3, 2010, and before Jan. 1, 2011 – may now qualify for a 6.2-percent payroll tax incentive, Estrada said. That provision exempts employers from paying a share of Social Security taxes on wages paid to workers after March 18, 2010.
“A bill placed into Congress last week seeks to extend the HIRE Act through the end of 2011,” Estrada said. “But there’s still an opportunity for businesses to take advantage of it this year. Businesses who hire employees that qualify for this should be aware.”
In addition to the unemployed worker incentive, the HIRE act allows employers to claim an additional general business tax credit, up to $1,000 per worker, for every employee they retained last year when they file their 2011 income tax returns.
New hires who fill existing positions qualify for the retention credit as well, and in that case an employer can apply for both credits for the same worker, but only if the workers they replaced left voluntarily or was fired for cause. Family members and relatives of the business owner don’t qualify for the credit, Estrada said.
The two tax benefits are especially beneficial to employers who have grown or expanded and added positions over the year, he said. “This means cash savings, increased cash flow and a potentially large credit for new hires over the year,” he said.
In addition, the HIRE Act requires that an employer get a statement from each eligible new hire certifying that he or she was unemployed for 60 days prior to beginning work, or, worked no more than 40 hours for anyone during the 60-day period.
“These tax breaks offer a much needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead,” said IRS Commissioner Doug Shulman.
Businesses, agricultural employers, tax-exempt organizations and public colleges and universities qualify for the tax benefit for new hires.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit, or WOTC, was signed into law in 1996 and was just extended through the end of 2011, Estrada said. “It’s an incentive for employers to hire individuals who have barriers to employment,” he said.
WOTC provides eligible employers with a tax credit of up to 40 percent of the first $6,000 of first-year wages of a new employee who is a member of a “targeted group” of workers who face difficulty finding a job.
“The new employee must not have worked for the hiring employer anytime in the past and may not be a relative or dependent of the employer,” Estrada said.
The target groups, which are created and expanded every year, were recently updated. Employees who now qualify for the WOTC include:
- A person or member of a family who has recently received financial help through the Temporary Assistance for Needy Families (TANF) program
- A person or member of a family who is receiving or has recently received food stamps
- An 18-40 year old person who is a resident of a federally designated “Empowerment Zone”
- A summer youth employee
- A qualified veteran
- A Supplemental Security Income (SSI) recipient
- Someone convicted of a felony or recently released from prison
“Single moms and vets typically generate the largest tax credits (for employers),” Estrada said. “There are a lot of dollars out there if you just look, and they generate quickly.”
Estrada said, typically, employers can get back $2,400 for each new adult WOTC hire, $1,200 for each new summer youth hire, $4,800 for new veteran hire and $9,000 for each new long-term family assistance recipient over a two-year period.
For more information on these and other tax credits, visit www.irs.gov or call a tax consultant.
