New Jobs Bill's Tax Provisons Favor Employers

Hiring Incentives to Restore Employment Act ("HIRE" Act) tax provisions include a payroll tax holiday for employees hired in 2010, along with an employer tax credit if those employees are retained for a year. HIRE also increases business assets that may be expensed for 2010, expands the Build America bonds program, and imposes a 30 percent withholding tax on foreign financial institutions not in compliance with prescribed reporting requirements.

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Payroll Tax Forgiveness

The employer-paid Old-Age, Survivors, and Disability Insurance tax of 6.2 percent on wages (the "OASDI tax," part of the "FICA" or "Social Security" tax) is a significant cost to employers. The Jobs Bill provides relief from the employer share of the OASDI tax, and essentially exempts employers from paying the 6.2 percent Social Security tax on certain new employees from the date of enactment through 2010.  This payroll tax forgiveness is available for all non-governmental employers. The provision applies to wages paid after the date of enactment and ending on December 31, 2010. The key to this benefit is that the worker must be a "qualified individual,"

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Tax Credit for Retaining Workers

Under the Jobs Bill, employers who hire workers eligible for the payroll tax forgiveness and retain them for a minimum period will be entitled to a general business credit, which is $1,000 for each retained worker or 6.2 percent of wages paid to the retained worker during the prescribed 52-week period. This applies to those workers who qualified for... payroll tax forgiveness...

Additional Expensing of Business Property

For 2010, however, as in effect prior to the enactment of HIRE, the amount that a taxpayer was allowed to currently expense was scheduled to be $125,000. That amount is further scheduled to be reduced to $25,000 for 2011.

The Jobs Bill provision increases for one year the amount that may be expensed under IRC § 179 to $250,000, thus maintaining the 2009 levels. This provision is only for years beginning after 2009 and before 2011...

Making the Build America Bonds Available for Tax Credit Bonds

The HIRE Act expands the Build America Bond model by making it available to other qualified Tax Credit Bonds. The legislation will allow issuers of Tax Credit Bonds to treat bonds issued after the date of enactment as Build America Bonds, thus qualifying for direct subsidy. The Bill also makes certain changes to the tax credit bond provisions.

Offset Provisions: Foreign Account Reporting, Payments to Foreign Financial Institutions and Foreign Entities

The HIRE Act imposes a 30 percent withholding tax on withholdable payments made to broadly defined foreign financial institutions and non-financial foreign entities that do not comply with new information reporting obligations about U.S. account holders. "Withholdable payments" includes dividends, rents, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodic gains, profits, and income from U.S. sources.

Provisions from the Foreign Account Tax Compliance Act (FATCA), conceived in 2009, are included in H.R. 2847 in order to help pay for $13 billion in HIRE Act employment incentives.

FFIs subject to the 30 percent tax withholding requirement are broadly defined, and generally apply to payments after December 31, 2012. To avoid the withholding requirement, FFIs must identify U.S. account assets and ownership to the IRS. Foreign corporations must identify principals who own more than 10 percent of the enterprise.

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