Springtime Budget-Busters -- Savings Experiment
Midday Market Minute: Average 401k Balance Reaches Record High
Even though there are signs of improvement, the U.S. economy still remains sluggish. No doubt, this has been particularly tough for small business owners.
So to help things along, Congress has passed another stimulus bill: The Hiring Incentives to Restore Employment (HIRE) Act.
To get some insight on this, I had a chance to talk to Bob Meighan, who is a vice president at Intuit's (INTU) TurboTax.
Background: As an employer, you need to pay one-half of a worker's Social Security tax, which comes to 6.2%. But under HIRE, this payment will be exempted.
However, the worker must be unemployed for at least 60 days before the hiring. In other words, make sure you meet the verification requirements. These should be available soon, such as from ADP (ADP), Intuit or other payroll providers.
Some other things to consider include:
- The tax exemption is for employees hired between February 3, 2010, and January 1, 2011.
- If the worker stays for a year, then there will be an additional credit of $1,000.
- Relatives are not eligible.
- And of course, you cannot fire employees and rehire them so as to get the benefit.
Impact: OK, this sounds like a nice perk. But is it enough to encourage hiring?
Keep in mind that new hires are usually at lower pay. Thus, if you pay someone $25,000 per year, then your savings will be $1,550.
True, this is a nice benefit, but it's probably not enough to result in significant hiring.
Another Goodie: There is another provision that may be much more beneficial to business owners. That is, Congress is going to extend the Section 179 deduction for equipment expenses. The amount will remain at $250,000.
Basically, this means that if you buy equipment, you can get a deduction for the first year instead of using depreciation (which means taking expenses over three or more years). No doubt, this can be a big benefit as business owners try to boost their cash flows.
For more information on the Section 179 deduction, you can check out one of my recent columns: Some Last-Minute Tax Strategies.
Tom Taulli advises on business tax preparation and is also the author of a variety of books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
3-22-2010 @ 2:40AM
jameshook83 said...
hi ,i am new guest in your website .i visit there first time and i just read your article and i agree with you.
3-22-2010 @ 7:27AM
MyKisa said...
.....why can you not fire them and rehire them....has gov man taken over the right to fire and hire now?
3-22-2010 @ 8:34AM
stephensonkarate said...
MyKisa you are so fuc/ing stupid no wonder why the country is in the shape it is in!!!!
3-22-2010 @ 10:58AM
Kay Hair said...
Let's see. I'm too broke to hire anyone. If I hire someone, I have to pay them at least $12,000 per year (pauper's wages), and I save $1,550. And then next year I save another $1,000. That leaves me in the hole to about $9,450 x 2. If I don't have the money to hire someone, $1,550 "savings" won't help. It's a start, but it's a tiny start, especially since the health care bill is going to bankrupt me anyway.
3-22-2010 @ 1:44PM
cheritutor said...
People - you are missing the larger point here! The "tax credit" comes in by allowing employers to NOT FUND SOCIAL SECURITY for those employees that qualify. This just exacerbates the problem with Social Security, which is already paying out more than it takes in. Wake up America!
3-22-2010 @ 4:37PM
Bob Bergstrom said...
The administration just doesn't get it. Business's hire when they NEED employees ! ! . If the politicians had any business sense they would make it possible for more business's to make keep and spend more of their hard earned money the way that THEY want to. Reduce the number of costly governmentally impossed rules and regulations that stifle business. I ran a business for over 47 years and we NEVER hired anybody unless we knew that our business and profit would grow because of it. Putting forth a tax incentive that is only temporary and only amounts to a small percentage will do nothing.
3-22-2010 @ 5:33PM
Sylvan said...
Not only will I not hire anyone new I am now firing all my employees and hiring strictly PART TIMERS as I cannot afford the mandate of health coverage.
One of my accounts called today and said he is firing 127 employees and will down size even more as a cost cutting approach.. This is one amazing change
3-22-2010 @ 5:12PM
Kate said...
We've had a small business for over 30 years. The only time we hire is when we have so much work, we can't manage it by ourselves. Saving 6.2% will not encourage the hiring of employees. Plus with the health care bill being muscled through by Obama... we'll have to provide health care for employees! That alone will break small businesses. Obama should have put limits on what insurance companies/hospitals/pharmaceutical companies could charge for their products and services. That would have lowered health insurance for Americans. Instead, he put it on the average Joe to foot the bill. We can't afford it.
3-22-2010 @ 8:12PM
Brian said...
I was going to hire a friend's brother who just got laid off. But now I will have to wait 60 days (54 days more) in order to take advantage of this benefit. As I read this, we can't even hire him as a temp. employee, as this would make him and us ineligible to take advantage of this legislation. We could use the help now, but $1500 is money I can use for advertising so we have the orders to fill when the 60 day "waiting period" is up.
3-22-2010 @ 8:18PM
Brian said...
MyKisa: To anwer your question: YES.
3-23-2010 @ 12:10AM
PacificPiers said...
Small business Photographer here. Grossed $263,000. last year with 2 employees. I'm hoping to gross $200,000 this year with the business downturn. Just gave my two employees 2 weeks notice. They will be replaced part-time by 4 to 5 College Interns working for free. I'll net more and work less. I HOPE to thank Omama for this CHANGE!