Wednesday, February 24, 2010

Proposed Tax Incentives Aim to Encourage Hiring



January 2010 saw the proposal of two important tax incentives aimed at encouraging businesses to increase hiring. Both tax credits provide incentives for hiring new workers, and one focuses solely on veterans. While neither tax credit is finalized yet, they could lighten the tax burden on businesses who have been financially hindered by recent economic conditions.

On January 29, President Obama proposed a tax credit worth up to $5000 for every new worker hired this year. The incentive is based on net employees; meaning only additional hires, not those that are hired to replace an employee that has left the company, are eligible. In addition, President Obama proposed a reimbursement of Social Security taxes businesses owe on increases in their payroll this year. If these tax credits gains congressional approval, businesses should be able to start claiming the credit on their 2010 taxes for new hires made this year. The total cost of these incentives is $33 billion, with an expected 1 million businesses positioned to benefit from it.

The other incentive was introduced by Rep. Deborah Halvorson (D-Ill.) on January 13. The Veterans Employment Today (VET) Act of 2010 (H.R. 4443) increases the work opportunity tax credit for hiring disabled veterans. Currently, employers can claim 40% of the first $12,000 in wages for every eligible veteran hired. The VET Action of 2010 would raise the amount of “qualified wages” to $15,000, allowing for a tax credit of $6000, an increase from the current maximum of $4800. The act also proposes that businesses that hire unemployed veterans be able to raise the amount of “qualified wages” from $6,000 to $7,500, which would allow for a maximum tax credit of $3,000. This bill has been referred to the House Committee on Ways and Means. For information on the current tax credits for hiring veterans, please read Tax Credits for Hiring Veterans.

While unemployment rates remain elevated, the last quarter of 2009 saw the largest rise in GDP in more than six years, with GDP rising at a 5.7% annual rate. Together with the upswing in the economy, these incentives may well help spur the hiring of millions of new workers. For more information on President Obama’s proposed tax credit, click here.

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