Mar 18th 2010
A new bill – with a price tag of $17.6 billion and a prediction of creating 250,000 jobs – is on its way to President Obama for his signature. It’s the Hiring Incentives to Restore Employment, or HIRE Act, informally called the jobs bill.
Sponsored by Sens. Charles Schumer (D-NY) and Orrin Hatch (R-UT), the bill passed on a 68-29 vote. The HIRE Act was first passed by the Senate in late February. After the Senate passed it on to the House for a vote, it was modified before being passed on March 4th. Because of the modifications, the Senate was required to vote on the changes before it could be considered “passed.”
The bill includes $18 billion to encourage hiring and $20 billion for highway and transit programs. President Obama said this morning that he expects to sign it today, according to the Chicago-Sun Times.
"The bill we passed today is a targeted approach designed to get Americans back to work right away by creating jobs to rebuild our country’s infrastructure and providing tax cuts for businesses to hire new workers," Senate Finance Committee Chairman Max Baucus (D-MT) said in a statement.
The idea is to reinvigorate the economy by encouraging new jobs with tax incentives. To qualify, hiring must occur after February 3, 2010, and before January 1, 2011. In addition:
- Individuals hired must have been unemployed for at least 60 days.
- Those individuals must be able to certify "by signed affidavit" and under penalty of perjury, that they "have not been employed more than 40 hours in the 60-day period ending on the date such individual gains such employment."
- No credit is available if the individual is hired to replace a person who is terminated, "unless such other person is separated from employment voluntarily or for cause."
The "encouragement" has two components
The first component has a maximum value equal to 6.2 percent of wages paid in 2010, up to $106,800 (the FICA wage cap). This benefit is realized as soon as the first payroll deposit is due since employers will not be required to pay the employer-share of Social Security tax on the wages of the new employee.
The second component is in the form of a $1,000 credit (maximum) for each new employee retained for 52 consecutive weeks. Wages paid in the last 26 weeks must equal at least 80 percent of wages paid in the first 26 weeks. This credit can be taken on the employer’s income tax return filed in 2011.
"The HIRE Act provides incentives for businesses to hire new employees now rather than in the future. For the employer, the HIRE Act is a direct boost to the bottom line. Incentives for businesses are straightforward, immediate, and are available for each job created," said Gary Butler, president and CEO of ADP, Inc.
"Congress and the Administration should be commended for passing the HIRE Act because it will help employers and encourage job creation. The only question is whether the HIRE Act alone is enough to get Americans back to work," Butler said.
Other key provisions in the HIRE Act
This bill also encourages investment by extending the Section 179 depreciation deduction at its 2008/2009 higher amount of $250,000 with a phase-out when expenditures hit $800,000. The higher level deduction expired at the end of 2009, pending further action by Congress.
It also extends highway and transit programs for 2010, and adds a provision that allows taxpayers to convert tax credit bonds to Build America Bonds. The Build America Bonds program was launched last year as part of the stimulus package and has the effect of subsidizing municipalities that issue taxable debt.
How did the House change the HIRE Act?
The credit for retaining employees for 52 weeks was modified to be equal to the lesser of 6.2 percent of wages paid in 2010, or $1,000. An exemption was added from the railroad retirement tax for qualified employees, to be paid in lieu of the Social Security tax for certain railroad employees. The credit was extended to eligible employers in U.S. possessions, such as Puerto Rico and the Northern Mariana Islands. A provision was included that makes exemptions from the payroll taxes for the first quarter of 2010 treated as advance payment of taxes owed for the second calendar quarter.
How will this bill be paid for?
A series of measures aimed at reducing offshore tax noncompliance by strengthening the Internal Revenue Service’s ability to fight offshore tax abuse are expected to raise $8.7 billion over 10 years. That’s roughly half of the $17.6 billion anticipated price tag.
Some of these tools include:
- A 30 percent withholding tax on U.S. source payments to foreign financial institutions, foreign trusts, and foreign corporations that are unwilling to disclose their U.S. accountholders to the IRS
- The requirement that taxpayers disclose their foreign account holdings on their U.S. tax returns
- An increase of the statute of limitations to six years for failing to report offshore income and transactions
- A provision to treat substitute dividends to foreigners as subject to U.S. withholding
- Clarification of the rules that determine when a foreign trust is deemed to have a U.S. beneficiary