On February 24, 2010, the Senate approved H.R. 2847, the Hiring Incentives to Restore Employment Act (HIRE Act), which includes tax incentives intended to boost employment. On March 4, 2010, the House approved a modified version of the Senate-approved HIRE Act. The bill now goes back to the Senate to approve the changes made by the House; otherwise, the House and the Senate will have to reconcile the differences. Some key provisions of the approved HIRE Act include the extension of the increased Internal Revenue Code (IRC) Section 179 expensing through 2010, the proposed addition of section 6431(f) for specified tax credit bonds, and incentives for companies that hire long-term unemployed workers.
Increased IRC Section 179 Expensing Limitations for 2010
Both versions of the HIRE Act approved by the House and Senate extend the increased expensing limitations under IRC Section 179 to 2010. For taxable years beginning after 2006 and before 2011, IRC Section 179(b) limits the election to expense certain depreciable assets to $125,000, and reduces the limitation when the cost of the IRC Section 179 property placed in service in the taxable year exceeds $500,000. However, for taxable years 2008 and 2009 the limitations were increased to $250,000 and $800,000, respectively. The Hire Act amends IRC Section 179(b) by extending the increased limitations for taxable years beginning after 2007 and before 2011 to $250,000 and $800,000, respectively.
Proposed IRC Section 6431(f) Specified Tax Credit Bond
The HIRE Act includes a new addition to IRC Section 6431 with respect to certain qualified tax credit bonds. IRC Section 6431 provides that issuers of qualified bonds issued before January 1, 2011, are allowed a credit with respect to each interest payment under such bond, payable by the Secretary contemporaneously with each interest payment date. IRC Section 6431 provides that the Secretary shall pay to the issuer 35 percent of the interest payable under such bond on such interest payment date.
Proposed IRC Section 6431(f) provides that any “specified tax credit bond” would be treated as a qualified bond, without requiring that the bond be issued before January 1, 2011. Under the provision as approved by the Senate, the determination of the amount of the interest payment with respect to any interest payment date shall be 65 percent of the amount of interest payable, in the case of a bond issued by a qualified small issuer, or 45 percent, in the case of a bond issued by any other person. However, the version as approved by the House eliminates the distinction between qualified small issuers and other issuers, by providing that the determination of the amount of interest payment shall be equal to the lesser of the amount of interest payable under the bond on the interest payment date or the amount of interest which would have been payable under the bond on the interest payment date if such interest were determined at the applicable credit rate, which is the rate the Secretary estimates will permit the issuance of the bond with a specified maturity or redemption date without discount and without interest cost to the qualified issuer.
Moreover, under the House version, if a specified tax credit bond is a new clean renewable energy bond or a qualified energy conservation bond, the amount of interest that would have been payable under the bond on the interest payment date if such interest were determined at the applicable credit rate, as described above, is deemed to be 70 percent.
Incentives for Hiring Long-Term Unemployed Workers
Proposed IRC Section 3111(d) Social Security Employment Tax Exemption
IRC Section 3111 imposes a payroll tax on employers for old-age, survivors and disability insurance (Social Security employment tax) equal to 6.2 percent of the first $106,800 of wages. The HIRE Act proposes to add a new provision that would exempt a qualified employer from paying the employer’s share of the Social Security employment tax for hiring certain qualified individuals. A “qualified employer” means “any employer other than the United States, any State, or any political subdivision thereof, or any instrumentality of the foregoing.” A “qualified individual” is any individual who begins employment with the qualified employer after February 3, 2010, and before January 1, 2011; was unemployed during the 60 days prior to the date the individual starts employment; was not employed to replace another employee unless the other employee left voluntarily or was fired for cause; and is not related to the qualified employer within the meaning of IRC Section 51(i)(1).
The House version provides that the exemption from the Social Security employment tax does not apply to wages paid during the first calendar quarter of 2010. However, under the House version, the amount of the Social Security employment tax exemption disallowed during the first calendar quarter of 2010 is treated as a payment against the tax imposed with respect to the qualified employer for the second calendar quarter of 2010.
Business Credit for Retaining Newly Hired Qualified Individuals
The HIRE Act, as passed by both the House and the Senate, provides an additional credit for employers that retain newly hired individuals. As approved by the Senate, the credit under IRC Section 38(b) business credit is increased by an amount equal to the product of $1,000 and the number of retained workers employed by the employer for a period of not less than 52 consecutive weeks, in the taxable year such requirement is satisfied. In the House version, the business credit is increased by the lesser of $1,000 or 6.2 percent of the wages paid by the employer to the retained worker during the 52 consecutive week period. The HIRE Act defines a “retained worker” as any qualified individual (as defined in Proposed Section 3111(d) above) who was not employed by the employer on any date during the taxable year, was employed for a period of at least 52 consecutive weeks, and has wages in the last 26 weeks equal to at least 80 percent of the wages for the first 26 weeks.
Other Miscellaneous Provisions
The HIRE Act also further delays the implementation of the worldwide allocation of interest to taxable years after December 31, 2019. The HIRE Act also provides additional rules related to the reporting of foreign bank accounts, foreign financial assets and foreign trusts.