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Mary Bernard
Mary Bernard

Incentives for Hiring the Unemployed

With the current state of the economy, any federal or state incentives encouraging expanded employment would be welcomed news to employers.

August 25, 2011
by Mary Bernard, CPA

Federal Incentives

The federal Hiring Incentives to Restore Employment (HIRE) Act of 2010 provided significant tax savings for qualified employers who hired previously unemployed workers. The tax benefit in 2010 involved a payroll tax exemption from the employer’s 6.2 percent portion of Social Security taxes on wages paid to qualified employees from March 19, 2010 through December 31, 2010. If these employees remained on the payroll for 52 consecutive weeks, the employer also is entitled to claim a tax credit for the lesser of $1,000 or the 6.2 percent portion of wages earned during that period. As the required retention period extended into 2011, the credit is available for the 2011 tax year. Although there was discussion of extending this incentive, the proposed bill was referred to the House Ways and Means Committee, where no action was taken.

State Incentives

With some states experiencing double-digit unemployment rates, legislation to stimulate job creation had increased during this last legislative session. Tax credits and incentives for hiring their unemployed residents were considered, but ultimately many were vetoed or died upon adjournment. Many of the surviving benefits were directed only at small businesses, although some affect all businesses.

The following states enacted legislation for incentives available to businesses of all sizes for hiring unemployed residents in full time positions, generally 37.5 hours:

Florida. The Jobs for the Unemployed Tax Credit Program provides eligible businesses with a $1,000 tax credit for each qualified employee previously unemployed for at least 30 days, who maintains full time employment for a period at least 12 months. This program is effective July 1, 2010, through June 30, 2012. A tax credit that is not fully used in the first year for which it becomes available may be carried forward to the subsequent tax year.

Maryland. The Job Creation and Recovery Tax Credit closely followed the HIRE Act in timing and in substance. Qualified employers hiring qualified residents may claim a refundable tax credit of $5,000 per employee up to a maximum of $250,000 per employer. The full time position must be newly created or vacant for at least six months at the time of hiring. The program was capped at $20 million for employees hired between March 25, 2010 and December 31, 2010.

Alabama. The Reemployment Act of 2010 was enacted to provide an additional income tax deduction for a portion of wages paid to qualified newly hired unemployed persons who formerly received unemployment benefits or whose benefits had expired. Although the program is effective for both 2010 and 2011, the deduction may only be claimed once per employee, after an employee has been continuously employed full time for at least 12 months. The deduction available ranges from 35 percent to 50 percent of qualified gross wages, depending on the base hourly wage.

Other State Hiring Incentives

In addition, there are several nontax incentives available to encourage the hiring of the unemployed. New Jersey’s Return to Work Program offers grants for on the job training to partially reimburse employers for the cost of training new workers. Any worker who has exhausted all unemployment benefits is eligible for the grant program. The California Employment Training Panel offers financial assistance to businesses to support customized worker training that provides specific benefits to workers and employers.

In addition to credits and incentives for hiring the unemployed, many states are offering other incentives enacted to increase jobs:

New York. To replace the Empire Zones Program which expired in June, 2010, New York enacted the Excelsior Jobs Program. To encourage expansion and relocation within the state, strategic industries such as manufacturing, financial services, software development and scientific research and development, to name a few, are targeted. Retail, entertainment and personal services are expressly disqualified from the program. The program includes an investment tax credit, a jobs tax credit, a research and development credit and a real property tax credit.

Indiana. The New Employer Tax Credit provides a temporary nonrefundable tax credit for a new business locating within the state or an existing business that expands operations, employing at least 10 new, qualified, full time employees during 24 consecutive calendar months or less. The credit allowed is 10 percent of qualified wages paid during that period. Applications for the credit must be submitted before January 1, 2013.

District of Columbia. The Job Growth Tax Credit allows a credit for projects that bring at least 10 new jobs to the District with an average yearly wage of at least 120 percent of the average District resident wage. The new positions must be retained for at least one year in order to qualify.

Conclusion

Small businesses can also take advantage of additional state tax benefits offered in Illinois, Connecticut, North Carolina, Virginia and California.

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Mary F. Bernard, CPA, is director — income/franchise tax, at the Dallas, Texas-headquartered tax services firm of Ryan. Bernard formerly worked as principal, director of State & Local Tax Services, at Providence, RI-based Kahn, Litwin, Renza & Co., Ltd.