Businesses 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, according to a new Treasury Department report.

The Hiring Incentives to Restore Employment Act of 2010, which was signed into law in March, provides employers with an incentive to hire workers who have been unemployed for 60 days or longer by exempting wages paid to these workers from the employer’s 6.2 percent share of Social Security payroll taxes for the remainder of the year. In addition to exempting employers from these payroll taxes, the HIRE Act allows employers to claim a tax credit of up to $1,000 for each newly hired qualifying worker who is retained for one year. An employer is eligible to receive almost $3,500 in tax savings from hiring an unemployed worker who is paid $40,000 in salary this year. 

Using monthly data from the Bureau of Labor Statistics’ Current Population Survey, the Treasury Department estimated that, from February 2010 to May 2010, 4.5 million workers who had been unemployed for eight weeks or longer were hired by employers who are eligible for the HIRE Act payroll tax exemption. If these 4.5 million newly hired employees remain employed for the rest of the year, their employers would be eligible for an estimated $5.1 billion in payroll tax savings as a result of the Act. Furthermore, if three quarters of the workers remain employed for 52 weeks, then their employers would receive another $3.4 billion in tax credits for these hires.

“What we’ve done in this report is to try to estimate how many workers have been hired so far whose employers would qualify for the HIRE Act tax extension,” said Alan B. Krueger, assistant secretary for economic policy and chief economist at the Treasury Department, during a conference call with reporters.

He added that the Treasury Department won’t know until businesses file their tax returns next year how much money is actually claimed with the IRS for the tax credits, but the BLS’ Current Population Survey allows the Treasury Department to make these estimates for the months of February to May. One of the purposes of the report is to make more employers aware of the credit to encourage more of them to take advantage of it.

“If hiring is delayed, the value of the tax exemption is reduced,” he said. “The HIRE Act is an example of a targeted, timely tax policy designed to get employers to move their hiring up. If they’re sitting on the fence and not sure whether they want to expand or not, the HIRE Act hopefully gives them an incentive to get off the fence and do additional hiring.”

Kruger spoke from Sanford, N.C., where a textile company has been adding new workers to take advantage of the HIRE Act. Andy Warlick, president and CEO of Parkdale Mills, said he had re-opened a facility in Sanford as the economy began improving for his company.

“We started making investments in plant and equipment,” he said. “This year we’ll spend around $75 million to $78 million on new equipment, and this credit is very helpful. We’re in a hiring mode at this plant. We’ll eventually have 106 employees operating some very sophisticated equipment, and so far during this ramp-up we have 31 employees that already qualify. But we’re also expanding at four other facilities where we will also be able to take advantage of this incentive.”

For more information on the HIRE Act, the  WebCPA on-demand webinar, "The HIRE Act: What CPAs Need to Know," provides details.

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