Would you like a tax break for hiring a worker—say, a student, or even your spouse or child? Then Uncle Sam may have a deal for you.
In March, Congress passed the Hiring Incentives to Restore Employment—or HIRE—Act, but the law was overshadowed by the hubbub surrounding health-care overhaul. The law is worth paying attention to because it applies broadly. In order to encourage hiring, Congress gave employers a new, temporary tax break. For any qualified hire after Feb. 3, the employer gets to skip paying 6.2% Social Security taxes on the worker's wages from March 19 through the end of this year. The tax is computed on gross wages, so the savings on $40,000 of pay would be nearly $2,500.
There's more: If the worker stays on the payroll for a year, the employer can get an extra dollar-for-dollar tax credit of up to $1,000 on the 2011 tax return. ...
Now comes the important question for parents: Do HIRE benefits apply for taking on relatives? Yes and no. This is a pertinent issue with the school year ending, but this law is frankly wacky when it comes hiring to spouses, children, siblings, nieces and nephews. ...
Sole proprietors can claim HIRE benefits from hiring a spouse but not other relatives.
Partnerships, such as LLCs and LLPs, may hire spouses and other relatives, with exceptions. If the only partners are a husband and wife, they can't take the benefits for hiring a relative. The breaks are also unavailable to a partnership that hires relatives of a partner who has more than a 50% interest. Two unrelated partners, each with a 50% interest, are free to hire their spouses and relatives and take the benefits.
Subchapter S and C corporations: It's often harder here. The firm can't take HIRE breaks for relatives, including a spouse, of a shareholder who owns more than 50% directly or indirectly. The rules add together related owners: if four siblings each own 25% of an S-corp., then the relatives of all are off-limits.
Of course, these prohibitions don't mean you can't hire relatives; they just mean you won't get HIRE breaks.