US Firms Cash In On Employment Credits

by Leroy Baker, Tax-News.com, New York

15 July 2010

The US Department of the Treasury on July 12 released a new report showing that, from February 2010 to May 2010, businesses hired an estimated 4.5 million new workers who had been unemployed for eight weeks or longer, making those businesses eligible to receive up to a projected USD8.5bn in HIRE Act tax exemptions and credits.

Alan Krueger, Assistant Secretary for Economic Policy and Chief Economist at the Treasury Department, announcing the report, said: "Helping unemployed Americans get back to work – particularly the long-term unemployed – is essential to ensuring a strong economic recovery.”

“Targeted, temporary incentives like the HIRE Act are helping to fuel a private-sector-led recovery. After a period of extraordinary difficulty, the economy is continuing to grow and private sector companies have added jobs for six straight months."

The Hiring Incentives to Restore Employment (HIRE) Act of 2010 provides employers 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% 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 USD1,000 for each newly hired qualifying worker who is retained for one year. An employer is eligible to receive almost USD3,500 in tax savings from hiring an unemployed worker who is paid USD40,000 in salary this year.

Using monthly data from the 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 USD5.1bn 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 USD3.4bn in tax credits for these hires. The scheme is still available for new hires for the remainder of the year.

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