Senators Charles Schumer, D-N.Y., has proposed extending the HIRE Act tax credit for employers who hire out-of-work employees.

Charles Schumer

The Hiring Incentives to Extend Employment Act provides businesses with an exemption from Social Security payroll taxes for every worker hired in 2010 who has been unemployed for at least 60 days. The maximum value of this incentive is $6,621, which equals 6.2 percent of wages paid in 2010, up to the Social Security FICA maximum wage cap of $106,800. The longer that a business has a new qualified worker on its payroll, the greater the tax benefit. An additional $1,000 income tax credit is available for every new employee retained for 52 weeks.

The tax credit is scheduled to expire at the end of this year, but Schumer, who had originally proposed the idea along with Sen. Orrin Hatch, R-Utah, wants to extend it to June 30 of next year.

A spokesperson for Hatch's office said he was not yet ready to support an extension of the tax credit but would first need to see "the totality of the legislation."

The Treasury Department estimated this week that businesses this year will be able to claim up to $8.5 billion in tax exemptions and credits for 4.5 million recently hired employees under the HIRE Act (see 4.5 Million Workers Eligible for Tax Exemptions).

“The fact that 4.5 million workers have been hired since we enacted our tax cut for businesses shows that this plan is targeted, timely and exactly what the doctor ordered,” Schumer said in a statement. “It’s critical that we extend this for another six months so more of our businesses can take advantage of the program and so that more middle class families can find work.”

Because the tax benefits currently only last through the end of the year, businesses have an incentive to hire immediately, Schumer’s office noted. By extending the tax credit for six months, businesses will have an increased incentive to hire.  For example under the current law, with the tax credit expiring at the end of 2010, a business that hires a worker making $40,000 in August will save a total of $1,003.  If the tax cut is extended for six months, that same business hiring the same worker will save $2,273.

In addition, under the current law, with the tax credit expiring at the end of 2010, a business that hires a worker making $70,000 in September will save a total of $1,446.67.  If the tax cut is extended for six months, that same business hiring the same worker will save $3,616.67.