President Obama has proposed a temporary tax credit to Congress that will encourage businesses to hire new employees.  The newly proposed Small Business Jobs and Wages Tax Credit would provide businesses with:

  1. A $5,000 tax credit for each new employee hired in 2010!  For example, if a business hires four new employees during 2010 the business would receive $20,000 in tax credits at the end of the year.  However, this credit will be capped at $500,000 per business to ensure that most of the benefit from this credit goes to small businesses!
  2. A reimbursement will be given to businesses for the Social Security payroll taxes that would be paid on real increases in a business’s payroll.  Increases on a business’s payroll would include: raising employee’s wages, expanding employee hours, or hiring of new employees.  The reimbursement would only apply to Social Security payrolls, therefore the reimbursement would not apply to wage increases over the current taxable maximum of $106,800.  Here is an example of how the reimbursement would work:  A business increases all 50 of its employee’s wages by $1,000 in 2010, costing the business $50,000.  Of the $50,000, $3,100 (or 6.2% of $50,000) will be reimbursed to the business to cover the Social Security payroll taxes on those increases that the business would normally have to pay.
  3. Lastly, firms will be able to claim the credit on a quarterly basis!  This will help businesses receive the money faster, plus it will give businesses an early incentive to hire and increase payrolls.

Businesses will not be allowed to cheat the credit either! Businesses will not be allowed to fire current employees and replace them with new ones just to receive the credits benefits.  For example: a company cannot fire 10 employees and hire 10 new employees.  Another example: a business that fires 10 employees making $50,000 each and hires 20 employees making $25,000 each will not receive benefits from this credit either.  There is no way to cheat the system!  The whole objective is for businesses to increase the number of employees, not fire old ones and replace them! Quarterly payroll tax returns serve as an audit point.

This straightforward tax credit, if approved by Congress, will mostly benefit small businesses and hopefully provide a spark for businesses to get the incentive to hire new employees again!

Maco & Associates will update you as soon as word comes out about the approval or rejection of this tax credit by Congress. STAY TUNED!

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