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CCH® PAYROLL — 03/02/10

Senate passes jobs bill

The Senate passed the Hiring Incentives to Restore Employment Act, H.R. 2847, on February 24. The payroll-related provisions are summarized below.

Payroll tax credit

An employer's general business credit would be increased by $1,000 for each retained worker that satisfies a minimum employment period. Generally, a retained worker would be an individual who is a qualified individual, as defined under the payroll tax forgiveness provision (see below) (new Code Sec. 3111(d)). The credit would be available for such an individual, if the individual: (1) is employed by the employer on any date during the taxable year; (2) continues to be employed by the employer for a period of not less than 52 consecutive weeks; and (3) receives wages for such employment during the last 26 weeks of such period that are least 80% of such wages during the first 26 weeks of such period. The portion of the general business credit attributable to the retention credit may not be carried back to a taxable year that would begin prior to the date of enactment of this provision. The provision would be effective for taxable years ending after the date of enactment.

Payroll tax forgiveness

The bill provides relief from the employer share of OASDI taxes on wages paid by a qualified employer with respect to certain employment. The provision applies to wages paid beginning on the day after enactment and ending on December 31, 2010. Covered employment is limited to service performed by a qualified individual: (1) in a trade or business of a qualified employer; or (2) in furtherance of the activities related to the purpose or function constituting the basis of the employer's exemption under Code Sec. 501 (in the case of a qualified employer that is exempt from tax under Code Sec. 501(a)).

A qualified employer would be any employer other than the United States, any State, any local government, or any instrumentality of the foregoing. Notwithstanding the forgoing, a qualified employer includes any employer that is a public higher education institution (as defined in Sec. 101(b) of the Higher Education Act of 1965).

A qualified individual would be any individual who: (1) begins work for a qualified employer after February 3, 2010 and before January 1, 2011; (2) certifies by signed affidavit (under penalties of perjury) that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment begins; (3) is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and (4) is not a related party (as defined under rules similar to Code Sec. 51(i)) of the employer.

A qualified employer may elect to not have payroll tax forgiveness apply. The election would be made in the manner required by the Secretary of the Treasury.

A qualified employer could not receive the work opportunity tax credit on any wages paid to a qualified individual during the one-year period beginning on the hiring date of such individual, if those wages qualify the employer for payroll tax forgiveness under this provision unless the employer makes an election not to have payroll tax forgiveness apply with respect to that individual.

The Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund will receive transfers from the General Fund of the United States Treasury equal to any reduction in payroll taxes attributable to the payroll tax forgiveness provided under the provision. The amounts will be transferred from the General Fund at such times and in such a manner as to replicate to the extent possible the transfers which would have occurred to the Trust Funds had the provision not been enacted. The provision would apply to wages paid after the date of enactment.

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