New tax laws could save businesses thousands on their 2010 taxes. The tax breaks are meant to encourage businesses to add employees, purchase equipment and provide employee healthcare.
The Hiring Incentives to Restore Employment (HIRE) Act included a payroll tax exemption for hiring and keeping new workers. Under the new law, businesses can exempt the 6.2 percent Social Security payroll tax for wages paid between March 18, 2010 and December 31, 2010, for each new employee meeting all the following criteria:
* Hired after February 3, 2010, and before January 1, 2011
* Either unemployed during the 60 days before being hired or worked less than 40 hours in total during that 60-day period
* Not a family member or other relative
The exemption does not apply to wages paid to an employee hired to replace an existing worker, unless the existing worker left voluntarily or was terminated for cause.
Employers are required to keep either Form W-11 or an affidavit signed by the employee (as proof they meet the criteria) in their records. The exemption is claimed on quarterly Form 941.
Businesses retaining the employees for 52 consecutive weeks without significantly decreasing wages in the second half of the year can claim a new hire retention credit of up to $1,000 per worker on 2011 returns.
The HIRE Act also extended the Section 179 first-year expensing cap on depreciable business property for 2010. The limit remains at $250,000 instead of decreasing to $125,000. The $800,000 cost-of-equipment limit was also extended for 2010.
The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, allows businesses and tax-exempt organizations to earn a tax credit for providing or maintaining employee health insurance.
Jessi Dolmage, spokeswoman for 2nd Story Software, makers of TaxACT, explained that businesses with 10 or fewer full-time equivalent employees with an average annual salary of $25,000 or less can earn the maximum credit of 35 percent, while tax-exempt organizations can receive 25 percent. Employers must pay at least half the cost of single coverage for employees. The credit decreases as the number of qualifying employees and average salary increase, phasing out at 25 full-time equivalent employees with an average salary of $50,000 or more. Family members do not qualify.
In 2014, the maximum credit amount will increase to 50 percent of the premiums paid for businesses and 35 percent for tax-exempt organizations.
Businesses can claim the credit under the general business credit, and the IRS will send instructions to tax-exempt organizations.
More information about the HIRE Act, health care credit and other tax breaks for businesses can be found at www.irs.gov.
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