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• Herbert A Simon

The recently enacted HIRE Act of 2010 is intended to offer tax incentives to employers who hire eligible employees by offering payroll tax credits. Overall, the HIRE Act is straight- forward and determining who is an eligible employee is not overly difficult.

Under the HIRE Act, employers can receive a payroll exemption of their 6.2% share of social security tax on all wages paid to qualified employees, exempting the employer from their share of Social Security taxes on 2010 wages paid to these workers after March 18, 2010. Employers are still liable for Medicare tax on all wages. In addition to the 6.2% savings, businesses who retain a qualified employee for a 52 consecutive week period can qualify for a tax credit of up to $1,000 provided the employee’s pay does not decrease significantly in the second half of the year. The employer may claim the new hire retention credit on their 2011 income tax return.

What employees are eligible for the HIRE Act?

The basic instructions, as explained on IRS Form W-11 are as follows. Employee must begin employment after February 3, 2010 and before January 1, 2011. An eligible employee has not been employed for more than 40 hours during the 60-day period ending on the date the employee begins work with employer. The employee must sign a W-11, or similar affidavit to be eligible. An employee is not eligible if he/she replaces a fired employee, but is eligible if filling a voluntarily vacated position, or as a result to downsizing. Employees who are also not eligible for the HIRE Act are any persons related to the employer, or a relative or dependent of anyone who owns more than 50% of outstanding stock or capital of a business. The HIRE Act does not apply to household employees.

Who is an eligible employer for the HIRE Act?

Businesses, agricultural employers, tax-exempt organizations, temp agencies, employees in U.S territories and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly hired employees. The HIRE Act also applies to brand new businesses. A business that lays off workers due to lack of work and hires new staff when business improves may qualify. The hire act even applies to employees who are laid off and rehired for the same position, and employees hired from a temp agency if the temp agency has not claimed said employees wages.

For an employee to be eligible he/she does not need work a minimum amount of hours or for a set period. Of course, to receive the general tax credit the employee must be employed for 1 year. Employers may claim the Cobra Premium Assistance Credit and the Payroll Tax Exemption for new hires on the same employment tax return.

As you can see, the requirements for the HIRE Act are not overly stringent or difficult to meet. The W-11 Affidavit is currently available on the IRS official website as well as additional information regarding more specific tax questions. Enrolled agents, CPA’s and other registered tax preparers should be aware of this opportunity to help clients save money under the Hire Act. These new rules cannot show up on the enrolled agent exam until the 2011 testing period, so if you are a prospective enrolled agentcurrently studying for the 2010 EA exam, you will not need to know these rules. The 2011-2012 enrolled agent course will cover this new law.

Even when the economy is doing well, there are a wide range of activities undertaken by nonprofit or not-for-profit organizations. There are a number of reasons for this. Culturally, the idea of volunteering your time for a good cause has always been strong. People are always prepared to give their time in providing a range of services to those in need. When the economy weakens and a recession tips more people into poverty, the need for volunteerism becomes greater. Indeed, the more people who need help, the more opportunities there are for nonprofit organizations to give that help. Add to this social incentive the economic fact that there are tax advantages to running nonprofit businesses, and you come to the reality that there are thousands of organisations providing business services of differing types in every major city across the country. They are filling the gap left when the for-profit organizations withdraw from the markets because they cannot make enough profit. In all businesses, the common denominator is the desire to make an operating profit. The difference lies in what you do with the profit. Yet every business has broadly similar insurance needs.

All businesses are regulated by federal and state laws covering employment, working conditions, and so on. Some are to the advantage of nonprofits, e.g. the Federal Volunteer Protection Act of 1997 protects volunteers from liability to third parties so long as they act within the scope of their duties. So if a volunteer negligently injures a member of the public while working for a nonprofit, he or she will not be personally liable. This significantly reduces the insurance premiums. All businesses should carry general third party liability coverage. The recommended amount of cover is $1 million for indemnity and defense costs which is usually sufficient to pay for the damage caused to a third party. But this amount should be increased if the people served by the nonprofit are particularly vulnerable or more likely to sue if something goes wrong. Put simply, a nonprofit can be financially destroyed by the need to defend frivolous claims. Business insurance pays for an attorney to provide that necessary line of defense.

If your business has a commercial lease for premises or rents places for different activities and events, liability insurance is absolutely necessary. If the organization provides transport, whether using the vehicles of volunteers or owned vehicles, there is a positive need for commercial auto insurance. Everyone who drives a vehicle as a part of their duties should be covered by this policy. Put the other way round, most private auto policies exclude coverage when the vehicle is used “for hire”, which excludes the vehicle while being driven for nonprofit purposes. The organization should also insure all the equipment, fixtures and fittings used in the offices and other places where the services are delivered. Employees may claim because their property is damaged or stolen, because they are the victims of harassment or discrimination, etc. The officers and directors of the nonprofits should carefully consider whether they need insurance in their roles. This is particularly important in the small business insurance market. There is less capital available to meet claims and insurance is a necessary part of the survival strategy.