Can a Spouse Qualify for HIRE Act Benefits?

Under the recently enacted HIRE Act, the following benefits are derived from hiring previously unemployed workers:

  • Payroll Tax Holiday – The law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days (can have worked 40 hours within the 60 days) from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee’s wages for the remainder of 2010. Thus, if the newly-hired and previously-unemployed worker earns $106,800 after March 18, 2010 and before the end of the year, the company could save a maximum of $6,621. This provides the employer with an immediate benefit by reducing the amount the employer must pay in employment taxes.
  • Retention Credit – As an additional incentive, for any qualifying employee hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit equal to the lesser of $1,000 or 6.2% of the wages. Since the 52-week requirement cannot be met until the subsequent year, the credit will be taken on the employer’s 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period. This credit is not available for domestic workers.

Will the payroll tax holiday and the employee retention credit apply if the new hire is the spouse of the business owner? The law specifically excludes the taxpayer’s children or their descendants, siblings or step-siblings, parents or a parent’s ancestor, step-parents, nephews, nieces, uncles, or aunts, and in-laws but not the business owner’s spouse. Thus a spouse who has not worked more than 40 hours in the 60 days prior to the hire date may qualify provided the spouse does not fail the relationship test with another co-owner of the same business. For example a father-son owned business where the father owns more than 50% of the business would preclude the son’s spouse from qualifying since she would be related to the father, a more than 50% owner.

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