Tax Flash - President Signs HIRE Act: New Law Provides Hiring Incentives and More By Diane Giordano, Partner - Tax & Business Services, Robert Spielman, Partner - Tax & Business Services & Andrew Park
On March 18, 2010, President Obama signed into law the HIRE (Hiring Incentives Restore Employment) Act which provides $17.5 billion in tax cuts and business credits, as well as increases in funding to the highway trust and transit programs.
Key pieces of the legislation, also referred to as the JOBS Act, includes tax benefits for employers who hire unemployed workers and the extension of the Small Business Expensing Election.
Highlights of the Act’s provisions include:
Employers who hire unemployed workers after February 3, 2010 and before January 1, 2011, may qualify for a 6.2% payroll tax holiday exempting their share of Social Security taxes on wages paid to these newly hired employees. The maximum savings per employee can be as much as $6,621. The employee’s portion of the Social Security will still be withheld from income. This employee payroll tax savings provision does not apply to Medicare tax.
A qualified employee is one who worked fewer than 40 hours during the 60 days prior to beginning work and provides a qualifying signed statement. The IRS is currently developing the form to be used as the required statement. Other restrictions and limitations apply.
The exemption relates to salaries paid for work performed after March 18, 2010. The reduced withholding will have no effect on a worker's future Social Security benefits.
In addition, for each qualifying worker retained for at least one year, the business may claim a tax credit of up to $1,000 on their 2011 tax return. The credit will constitute a General Business Credit. Carrybacks of this credit are not allowed.
Code Section 179 Expensing
The JOBS Act extends to December 31, 2010 enhanced Code Section 179 expensing at the same level as 2009.
Therefore, qualifying purchases of property can be deducted up to $250,000 with the phase-out set at $800,000. Without this important extension, the maximum Code Section 179 deduction was $134,100 and the phase out began at $530,000.
Tax Credit Bonds
Build America Bonds are taxable bonds issued by a state or local government which provide the holder a non-refundable tax credit, or alternatively provide the issuer a subsidy as a refundable tax credit. The Act enhances the program by providing an election for issuers to receive a direct Federal payment instead of a refundable credit.
Foreign Tax Compliance
The HIRE Act partially pays for itself by giving the IRS new tools to impose penalties on taxpayers who are non-compliant with respect to their offshore holdings. The Act also gives the IRS the authority to expand the scope of information required to be disclosed with respect to offshore holdings.
The new law requires individuals to report offshore accounts and other foreign financial assets with values of $50,000 or more on their tax returns. Individuals who fail to make the required disclosures are subject to a penalty of $10,000 for the tax year; an additional penalty can apply if Treasury notifies an individual by mail of the failure to disclose and the failure to disclose continues. These provisions apply for tax years beginning after the new law's enactment date.
For payments made after 2012, the Act imposes a 30% withholding tax on certain income from U.S. financial assets held by a foreign institution unless the foreign financial institution agrees to disclose the identity of any U.S. individual with an account at the institution (or the institution's affiliates) and to annually report on the account balance, gross receipts and gross withdrawals/payments from such account.
The Act expands the definition of a withholding agent which now includes any person having control, receipt or custody of a withholdable payment, such as interest, dividends, wages and any other remuneration.
Requires shareholders of passive foreign investment companies (PFIC) to file an annual report with the IRS. The IRS is currently developing this form.
U.S. owners of foreign trusts will be subject to new reporting requirements with respect to transfers to foreign trusts and its U.S. beneficiaries. The Act also imposes a $10,000 penalty for failure to file information returns with respect to certain transactions involving foreign trusts (e.g. the creation of a foreign trust, the transfer of money or property to a foreign trust, or the death of a U.S. owner of a foreign trust).
The statute of limitations have been extended for omissions of income in connection with foreign assets to six years.
Corporate Tax Payments
The corporate estimated tax payment required to be made by corporations with assets of $1 billion or more will be increased for the July, August and September 2015 installments to 121.5% of the amount otherwise due. The next required installment is reduced to reflect the enhanced payments.
The Act does not address the estate tax which expired as of December 31, 2009. It is expected that lawmakers will address this issue in a separate bill.
The JOBS Act’s sole extension is the Code Section 179 Expensing Provision.
The House and Senate are working to resolve differences in competing bills to extend numerous individual and business provisions. While important differences need to be resolved, it is anticipated that the following extenders will be enacted in forthcoming bills.
Extender Individual Provisions - Still Awaiting Enactment
The $250 Teacher’s Classroom Expense Deduction
Additional standard deduction for real estate property taxes
State and local sales tax deduction
Higher education tuition deduction
Extender Business Provisions - Still Awaiting Enactment
Bonus Depreciation – The JOBS Act does not extend bonus depreciation
COBRA Premium Assistance would be extended through March 31, 2010
The Research and Experimentation Credit
Differential wage payments to active military
Qualified leasehold improvements and qualified restaurant property depreciated over a 15 year life
The Indian Employment Credit
New Markets Tax Credit
Five year write off of farm equipment
Mine Rescue Training Credit
Tax incentives for empowerment zones and renewal communities
Section 181, which provides expensing treatment for qualified film and television production costs
Section 199 Deduction for Puerto Rico Production Activities
Extender Charity Provisions - Most Awaiting Enactment
A 2009 charitable contribution will be allowed for gifts to victims of the earthquake in Chile made prior to April 15, 2010 (new provision). In addition, contributions to the victims in Haiti made prior to April 15, 2010 (extended from February 28, 2010) may be treated as a 2009 deduction.
Tax free distributions from IRA for charity
Contributions of realty made for conservative purposes
Extender Energy Provisions - Still Awaiting Enactment
Alternative Motor Vehicle Credit for Hybrid Vehicles
Credits for Biodiesel and Renewable Diesel Fuel
Key Revenue Raiser in House Extender Bill
Investment Fund Managers taxed at ordinary income tax rates on income from partnership interests received. For services, the Senate Extender does not include this provision.
Should you have any questions about the HIRE Act and how it may affect you or your business, contact your MarcumRachlin Tax Professional.