To encourage hiring of new employees, the Hiring Incentives to Restore Employment (HIRE) Act provides immediate tax incentives for each qualified employee hired after February 3, 2010, and before January 1, 2011:

• Payroll Tax Exemption. Regardless of their size, employers are eligible for an exemption from the employer portion of the Social Security component of FICA taxes. The maximum tax savings is $6,621 if the employee is paid up to this year's Social Security taxable wage base of $106,800. Among other requirements, a newly hired employee must have been unemployed for the 60 days preceding his or her hire date. The tax exemption is not available for new employees that displace current employees or for certain disqualified employees, such as relatives of business owners.

Employers may claim the exemption on their 2010 quarterly employment tax returns (or claim a credit or refund, if applicable).

• Retention Tax Credit. To encourage employers to keep these new hires on the payroll, the HIRE Act provides for a business tax credit equal to the lesser of $1,000 or 6.2 percent of the wages paid by the employer to each new qualified employee. To prevent employers from keeping employees only nominally on the payroll, employers must pay qualified employees during the last 26 weeks of the year at least 80 percent of what they were paid during the first 26 weeks of the year. The tax credits for 2010 may be claimed in 2011.

-- Lauren Licastro
Morgan, Lewis & Bockius LLP
href="mailto:llicastro@morganlewis.com">llicastro@morganlewis.com,

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