Will tax breaks help businesses grow payroll?

By: Peter Suhai Tax Planning 1 Follower

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Employers who hire people struggling to find work this year will reap tax benefits under a new federal law, but business groups say the law doesn’t go far enough.

The Hiring Incentives to Restore Employment Act was enacted March 18. It gives a payroll tax holiday to employers who hire people unemployed for 60 days or more beginning Feb. 4, 2010 through the end of this year. This law is expected to help businesses hire 300,000 workers, according to the IRS, which launched a special page on its website to explain how it works.

The National Federation of Independent Business and the National Small Business Association both say that the benefits will help some businesses, but contend that the federal government needs to do more to cut taxes.

"For those businesses that will benefit it’s a good thing," said Molly Brogan, vice president of public affairs for the National Small Business Association, "but I also don’t think it’s a silver bullet."

Bill Rys, tax counsel for the National Federation of Independent Business, said that businesses are unlikely to add new workers until business picks up. His group has proposed expanding the payroll tax holiday to existing as well as new workers.

Which businesses qualify for new hiring incentives?

Businesses, agricultural employers, tax-exempt organizations and public colleges and universities can claim the payroll tax benefit. Household employers are not eligible.

The law provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages for each qualified employee. An employer can claim the benefit for new hires filling existing positions - but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

If the employee stays on for a full year, the business will also be eligible for a tax credit of up to $1,000.

The Treasury Department estimates that from February 2010 to June 2010, businesses hired 5.6 million employees who had been out of work for two months. Those businesses would be eligible for the tax benefits, the IRS said.

“These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead,” said IRS Commissioner Doug Shulman in a statement.

By Tanya Mannes, Union Tribute


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