Business is starting to pick up for many sign shop owners. Thankfully, as other businesses jump-start their marketing campaigns, we are the guys they call to get their message out there. So if you are seeing an increase in your sign making business, you may want to consider taking on new employees to help with the additional workload. Doing so even opens the door for two potential tax benefits. (We’re not accountants, so check with yours first!)
Back in March, President Obama signed the Hiring Incentives to Restore Employment Act into law. The first tax break offered by the new law offsets the amount the business is expected to pay on Social Security taxes from March 19, 2010, to December 31, 2010. So rather than having to pay out 6.2 percent of the employee’s wages to Social Security, you get to keep those funds for your business. The employee is still entitled to the same amount of Social Security benefits in the future and you are still expected to pay payroll and income taxes, and Medicare taxes.
The HIRE act also offers another benefit: if you keep your new employees for more than a year you can claim a general business tax credit, as long as their wages have not decreased dramatically over the year. The credit is worth 6.2 percent of the employee’s wages, up to $1000. The credit may be claimed for each new employee you have hired, and can only claim the credit after they have been in your employment for one full year.
These two tax breaks can save you loads on your taxes! There are, however, a couple of rules and restrictions you should be aware of.
HIRE tax breaks cannot be claimed for any employee who is related to you. New employees who are not your relatives must have worked fewer than 40 total hours in the 60 days prior to you hiring them. There are no restrictions regarding age, and employees do not have to have had previous employment. If you hire a new graduate who has never held a job before you are eligible for the tax breaks.
If you laid off employees, and they have been out of work for 60 days, you are allowed to rehire them and claim the credit. You cannot, however, let go of a current employee to hire a new one just so you can receive the tax benefits. If an employee leaves of his own accord or is fired for a reason you are free to hire a new employee and reap the tax benefits.
When you hire the new employee they must fill out a Form W – 11 which verifies that they were unemployed prior to being hired by you. The Social Security Tax benefit should be filed on the company’s federal employment tax return (Form 941) and the $1000 credit can be claimed on the 2011 business returns.
If your business is bursting at the seams and you are ready to hire new employees, by all means do so, and don’t forget to take advantage of these tax breaks. If you are unsure whether you should hire now or wait until later, don’t imagine that these breaks offset the entire cost of hiring a new employee. Make sure your business is in a position to handle the cost of a new employee before hiring anyone; the purpose of the HIRE act is to create incentives for hiring those out of work, lower the number of unemployed, and stimulate the economy, not make it cheaper for you to add to your staff.