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Tax incentives for employers in the Jobs Bill

Posted by Jamie Downey  February 24, 2010 08:55 AM

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Today, the Hiring Incentive to Restore Employment Act (HIRE), H.R.2847 was passed by the Senate in a 70-28 vote. There are three significant tax incentives for employers included in this bill. They are as follows:

Hiring Tax Incentives – Social Security requires employers to pay 6.2 percent payroll tax on employee wages. This tax ends once an employee receives $106,800 in wages. This is in addition to the 6.2 percent paid by employees for a combined total of 12.4 percent. Medicare adds another 2.9 percent combined tax to the employer and the employee. The proposed legislation would exempt employers from paying their portion of Social Security tax of 6.2 percent on qualified employees who start employment after February 3, 2010 and before January 1, 2011. A qualified employee is defined as someone that has not been employed for more than 40 hours during the 60 days prior to commencement of employment. The new employee cannot replace a currently employed person (unless the current employee quit voluntarily or is terminated for cause.) This could potentially save employers up to $6,622 in payroll taxes ($106,800 x 6.2 percent) for each new hire. It should be noted that employers would concurrently lose their tax deduction for these payroll taxes, which could create a partial increase in income taxes.

Employee Retention Credit - Employers that hire a "qualified employee" and keep them employed for one year will be eligible for a $1,000 tax credit. This is in addition to the reduced payroll taxes paid for the employee. This credit would be available for each qualified employee hired. This credit would be taken on the employer's 2011 tax return.

Capital Expensing - In 2009, the tax code allowed small and mid-size businesses to take a tax deduction for capital purchases up to $250,000. This is often referred to as a Section 179 deduction. Under current legislation, this deduction declines to $125,000 in 2010. The Senate's bill would extend last years provisions and allow for up to $250,000 in capital expenditures to be treated as a deduction in 2010.

While this legislation has passed in the Senate, it still needs to be reconciled to the House's version of the jobs bill which was passed in December.

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