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Hiring New Employees Now Can Help the Small Business Owner

November 8, 2010

In a down economy we need all the help we can as a small business. Hiring new employees has some tax advantages and you have until December 31, 2010 to act. There are two tax saving programs: Social Security Tax Exemption for Wages Paid to New Hires and a Tax Credit for Retaining New Hires.

Wages paid to a qualified new employee between March 19, 2010 and December 31, 2010 are exempt from the employer’s portion of the Social Security tax (the employer portion equals 6.2% of wages up to $106.800). The exemption doesn’t apply to the employee’s portion of the Social Security tax (also 6.2% of wages up to $106,800). Qualified new employees are full-time or part-time works who – (1) start working after February 3, 2010 and by no later than December 31, 2010, and (2) were not employed more than 40 hours during the 60-day period ending on the start date. The new worker cannot displace a current employee unless that person  quit voluntarily or was discharged for cause. Wages paid to workers who are related to an owner of the employer may be ineligible.

Above and beyond the Social Security tax exemption, employers can also claim a new tax credit of up to $1,000 for wages paid to each qualified new employee (defined the same way as for the Social Security tax exemption). However, there are some additional requirements to collect this break. You must keep the worker on the payroll for at least 52 consecutive weeks, and the wages during the second 26 weeks must equal at least 80% of wages paid during the first 26 weeks. The credit equals the lesser of (1) 6.2% of qualifying wages paid during the 52-consecutive-week period or (2) $1,000. To claim the maximum $1,000 credit, the worker must be paid a t least $16,130 during the 52-week period. Also, the credit is claimed in the tax year that the 52-week period is met for the worker. Therefore, the credit will be claimed on your 2011 return. Still you have to get the ball rolling by hiring the new employee in 2010.

Let us help you figure this out,  at GAI (www.gunwel,.com) that is our job and we want to help. Give us a call today at 212-979-6830 or stop by for your free consultation. See you soon!

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