On January 13, 2010 a new bill was introduced to Congress, HR 4437, under the name Hiring Incentives to Reinvest and Incentivize New Growth Act of 2010, or HIRING Act of 2010. Intended as an addition to the same section of the IRS Code that provides credits to first-time homebuyers, its intent is to grant a 15% tax credit to any employer who expands their payroll by 3% in any calendar quarter of 2010 and a 10% tax credit to any employer who expands their payroll by 5% in any calendar quarter of 2011. The credit would be paid quarterly so benefits would accrue to businesses more quickly. The intent, of course, is to get businesses to hire more employees, restore or increase employee pay and increase employee hours.
According to the wording of the bill (see link in preceding paragraph), if my company’s total gross payroll in Q1 2009 was $100,000 (for easy number’s sake) and my total gross payroll in Q1 2010 was $110,000, then I would be eligible for a credit of $300.00 under the following formula:
* Wages Q1 ’10 $110,000 – Wages Q1 ’09 $100,000 = $10,000
* 3% of $10,000 = $300.00
What isn’t so clear is that whether this credit will be against taxes to be paid to the IRS on a corporate return, or perhaps some form of a credit against employment-related taxes. Since the bill explicitly states that the benefit will be paid quarterly so the business realizes the benefit more quickly, that leads me to believe that it would be against employment-related taxes. So is the intent to short the employer-paid portion of FICA? Unlikely. That is the only portion (other than Federal Unemployment Tax) that could be credited on a quarterly return. The text of the bill is notoriously unclear on this point.
Since most small and medium-sized businesses (those that constitute the largest portion of taxpayers and employers in the US) only file tax returns with the IRS on an annual basis, this leaves me to wonder whether this is a credit that would have to be explicitly filed for on a quarterly basis-separate from the process that is the status quo- which in itself may make the time and effort not worthwhile. And as is standard practice with many S Corporations, many try to show no profit at the turn of their fiscal year so to avoid double-taxation, so there would be again, nothing to credit.
To be fair, this bill was introduced less than a month ago, will be subject to much debate and evolution, and could have a very positive effect on the employment situation in the US. But this is a classic example of the devil being in the details. If the resulting change to the Tax Code is a SMB friendly process for both earning and realizing the credit, then it should be very effective and a win-win for employers and employees. But should it become a credit not worth persuing, or “toothless” in its benefit, then like much of the other recovery legislation proposed or enacted, its potential benefit will have been lost in translation.
Now onto healthcare!