What does the HIRE Act mean to your Clients - and you?
You already know the HIRE Act HR 2847 was signed into law yesterday. You can find the relevant details on accountingweb.com here.
For those of you who love to go to the source, you can find the law on Thomas, here.
Yesterday, I had a nice, long chat with CCH Principal Federal Tax Analyst , Mark Luscombe and IRS spokesman, Eric Smith in order to get you more clarification on the new law.
First of all, you know there will be forms. They are coming. Stand by.
1) A document for new hires to sign to attest that they have not worked more than 40 hours in the last 60 days.
Sadly, like the homebuyers credit, no proof will be required from the employee - just a signature, under penalty of perjury. You acn see the potential abuse here. BUT...good news. It is not the employer's worry. The employer will not be held responsible if the employee lies. (Unless, of couse, IRS could ever prove the employer had reason to know of the lie.)
2) A new version of Form 941 to accommodate the wages not subject to the FICA tax of 6.2%.
It will be available for Q2 filings, not Q1.
IRS says, for overpayment of FICA in Q1 on wages that qualify (wages of qualified employees hired since February 3, 2010), you will be able carryover the excess paid to your 2nd quarter Form 941. IRS advises that you don't reduce current payroll deposits to adjust for prior wages.
3) A new Credit form for the $1,000 credit for new hires who stay for a year or more.
Mark Luscombe thinks it will be a General Business Credit form, carried to Fom 3800.
There's no rush on this one. No one can use this form until an employee has been there for a year. So expect it to be available for 2011 tax returns, or for fiscal years starting on February 4, 2011.
Employers must choose between this FICA Tax Holiday or the Work Opportunity Credit.
For many employers, it's not an issue. They may never hire anyone qualified under Form 5884 - so just use the new HIRE benefits.
However, if you specifically encourage your clients to hire WOC workers, run some numbers to analyze which benefits are better in each instance.
These are the targeted group employees:
- Hurricane Katrina employee
- Long-term family assistance recipient
- Qualified recipient of Temporary Assistance for Needy
- Families (TANF)
- Qualified veteran
- Qualified ex-felon
- Designated community resident
- Vocational rehabilitation referral
- Summer youth employee
- SNAP recipient
- SSI recipient
- Unemployed veteran
- Disconnected youth
Firing, then hiring
The law specifically prohibits the firing of employees to make room for HIRE Act hires.
You can fill positions based on attrition, or fire employees for cause.
As I explain in today's MarketWatch.com article, Mark is wary of the phrase 'for cause'. Read about his concerns.
This HIRE Act, though, may be just the incentive a lot of companies have needed to shut down entire product lines, entire shifts, or close down departments, filled with long-term workers who've reached the highest pay grades. The companies may retool and reopen different product lines, re-establish a shift or rename a department and fill it with less expensive employees - or even wait 60 days and offer to re-hire their old employees,with a pay cut.
You won't need to worry about government departments or agencies doing this. They are not covered in the HIRE Act. Bue colleges and universities are eligible for the tax benefits.
As the weeks unfold and real-life practical questions come up, we are all going to learn more about how this law will impact our payroll filing, hiring and tax returns.
Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.