Tax Exemptions Lead to Employment Increases

July 13, 2010 Taxation in USA

_MG_0429An estimated 4.5 million previously unemployed Americans have attained paid-positions in the last four months, qualifying their employers for the US tax benefits of the Government’s Hiring Incentives to Restore Employment (HIRE) Act of 2010.

On July 12th the US Treasury Department released preliminary results of the Government’s HIRE Act of 2010. According to estimates (on the date of publishing), 4.5 million long-term unemployed US citizens have attained work during the first four month of the program, potentially savings their employers billions in payroll taxes.

Under the HIRE Act, employers paying wages to newly-hired taxpayers between March 19th 2010 and December 31st 2010 are eligible for an exemption to the 6.2 percent contribution towards Social Security payroll taxes. An additional tax credit of USD 1000 will also be granted to the employer for every employee who is retained for longer than 52 weeks. The HIRE Act only applies to new employees who have previously been out-of-work in excess of 60 days.

According to US Treasury estimates, if every employee applicable for the HIRE Act is retained for a period of at least a year, employers will experience a cumulative USD 5.1 billion reduction in payroll tax obligations. However, by applying their commonly observed staff turnover rate, the Treasury estimates a tax saving of approximately USD 3.4 billion. The figure rises to USD 8.5 billion when the USD 1000 tax credit is considered. The estimates are expected to rise further during the year as the HIRE Act will continue to apply for the remainder of 2010.

The latest figures have sparked a fresh round of support for the tax incentive. Charles Schumer, Senator for New York and one of the original authors of the Act, has already begun weighing up a six months extension to the system. Some critics of the HIRE Act have outspokenly claimed that there is no way to gauge the effectiveness of the scheme and its direct impact on unemployment. However, economic analysts have pointed out that the average unemployment period for those falling under the HIRE Act is 10 months, indicating its effectiveness.

Photo by saebaryo