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CCH® PAYROLL — 07/20/10

Treasury reports on HIRE Act payroll tax forgiveness claims

A July 12 Treasury Department report estimated that businesses have hired nearly 4.5 million new workers from mid-February through mid-May of 2010, entitling those employers to a projected $8.5-billion in payroll tax exemptions and credits under the Hiring Incentives to Restore Employment (HIRE) Act (P.L. 111-147). Treasury Assistant Secretary for Economic Policy and Chief Economist, Alan Krueger, told members of the press during a teleconference that "we're going to compute this calculation every month going forward until we know how many workers are being hired who potentially qualified for the HIRE Act tax exemption and how much money employers can potentially claim or by which may reduce their withholding tax."

Payroll tax exemption

As enacted in March 2010, the HIRE Act forgives payroll tax liability for wages paid to new hires unemployed for at least 60 days before their start date. The provision applies to individuals beginning employment after February 3, 2010, and before January 1, 2011. The law also provides that employers who keep the new hires on their payroll for at least 52 weeks are eligible for a tax credit for each qualifying employee. This latter provision increases the employer's Code Sec. 38(b) business tax credit by the lesser of $1,000 or 6.2 percent of wages paid, for each employee.

Estimated credits

The IRS has no data on current employer eligibility or claims for these benefits, Krueger acknowledged. However, he reported that the Treasury used monthly Current Population Survey (CPS) data to analyze the extent to which employees were hired during the reporting period by employers who would qualify for the HIRE Act's payroll tax exemptions. CPS data is the basis for official government labor force statistics, such as the unemployment rate.

The Treasury found that:

• Approximately 4.5 million workers who were unemployed for eight weeks or longer were hired by employers eligible for HIRE Act payroll tax exemption;
• Newly hired employees with employers eligible for the benefit constituted 12.2 percent of all workers unemployed for eight weeks or longer since the effective date of the law;
• Businesses that hired these new workers would qualify for an estimated $5.1 billion in payroll tax savings if they retained those workers for the remainder of 2010;
• If at least three-quarters of those employees remained with their employers for a full 52 weeks, the employers would qualify for an additional estimated $3.4 billion in tax savings.

"We're trying to make sure as many employers claim this credit as possible because, if hiring is delayed, the value of the tax exemption is reduced. 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 if they want to expand or not, the HIRE Act hopefully gives them an incentive to get off the fence and do additional hiring," Krueger said. (Treasury Department News Release, TDNR TG-773.)

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