Job Credit Legislation

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Tax Legislative Update Breaking news from Capitol Hill from Grant Thornton’s National Tax Office 2010-05 March 17, 2010 Congress sends job credit legislation to the president Congress has sent job creation legislation (H.R. 2847) to the president, which will create new temporary tax incentives for hiring unemployed workers.

The House passed the final version of the bill on March 4 with a 217 to 204 vote, and the Senate followed on March 17 with a vote of 68 to 29. The president is expected to sign the bill into law quickly.

H.R. 2847 will extend through 2010 the increased limits and phase-out threshold for Section 179 expensing and will create new tax incentives for hiring workers who are not employed for more than 40 hours in the 60 days before their hiring.

The cost of the legislation is offset by a package of new international reporting requirements and a further delay in worldwide interest allocation rules.

Job creation incentives in the Senate bill New hire incentives The legislation exempts employers from the 6.2 percent employer share of Social Security taxes on wages paid to a “qualified individual” after the date of enactment through the end of 2010. An additional credit of up to $1,000 is available for each qualified individual retained by an employer for 52 consecutive weeks. The credit is capped at 6.2 percent of wages paid the qualified individual during the 52-week period.

Qualified individuals are individuals who begin work after Feb. 3, 2010, and before Jan. 1, 2011, who certify under penalties of perjury that they have not been employed for more than 40 hours during the 60-day period ending the day the new employment begins. The qualified individual cannot replace a previous employee unless the pervious employee leaves voluntarily or was fired for cause. Explanatory material provided by the staff of the Joint Committee on Taxation indicates that the benefit is also intended to be available in the case of former employees who are rehired after the requisite period of unemployment.

Contact information

Mel Schwarz Partner National Tax Office T 202.521.1564 E [email protected] Dustin Stamper Manager National Tax Office T 202.861.4144 E [email protected] www.GrantThornton.com/tax


Because the incentives are available for replacing an employee who leaves voluntarily, they could be particularly beneficial to businesses with high natural turnover who hire previously unemployed workers.

The statutory language does not require employers to verify the employment history of a new hire who signs an affidavit. There are no statutory rules for determining if a new employee is replacing an old employee.

Wages of a qualified individual may not be considered in determining Work Opportunity tax credits (WOTCs). An election to forego the exemption from the employer’s share of Social Security taxes is available for those employers wishing to preserve maximum WOTCs. The retained employee credit is expected to be available whether or not an employer elects to forego the exemption from social security taxes.

Government employers — other than public higher education institutions — are not eligible for the exemption from payroll taxes. Employers in U.S. possessions can take advantage of the incentives, and the exemption from the employer’s share of payroll taxes is also available against railroad retirement taxes that are paid in lieu of Social Security taxes for certain railroad employees.

Section 179 expensing The legislation would extend retroactively through 2010 the $250,000 limit for small business expensing under Section 179 and the increased phase-out threshold of $800,000.

Build America bonds This proposal would allow issuers of certain tax credit bonds to elect the Build America Bond structure, which provides the bond holder a direct payment from Treasury rather than a credit against federal income tax.

Revenue raisers Foreign Account Tax Compliance Act of 2009 (FACTA) The legislation includes international reporting proposals first introduced as FACTA. The most significant provision would impose a 30 percent withholding tax on income from U.S. financial assets held by foreign financial institutions unless the institutions enter into an agreement to disclose certain U.S. accountholders; annually report the account balance, gross receipts and gross withdrawals; and comply with certain other requirements. Other significant provisions in the bill would: • impose a 30 percent withholding tax on any withholdable payment (generally, certain

passive-type income and proceeds from the disposition of such assets) to a foreign entity that is not a financial institution if that foreign entity, or another non-financial foreign entity, is the beneficial owner of the payment, unless the beneficial owner or the payee provides the withholding agent with either a certification that the beneficial owner does not have any substantial U.S. owners or the name, address and taxpayer identification number of each such substantial U.S. owner of that beneficial owner —


this provision would generally be effective for withholdable payments made after Dec. 31, 2012;

• require individuals to report offshore accounts or assets worth over $50,000 on their tax returns;

• impose a 40 percent penalty for understatements attributable to an undisclosed foreign financial asset; and

• increase the statute of limitations for omissions on a tax return of items over $5,000 that are attributable to one or more reportable foreign assets.

Worldwide interest allocation The bill would delay for three years the implementation of worldwide interest allocation rules. The rules are scheduled to take effect for tax years beginning after Dec. 31, 2017, but under this provision would take effect for tax years beginning after Dec. 31, 2020.

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Job Credit Legislation