A blog post

The Small Business Jobs and Wages Tax Credit

Posted on the 01 February, 2010 at 9:21 pm Written by in News, Taxes

In his State of the Union speech, Obama outlined four proposals aimed at small businesses: eliminating the capital gains tax, encouraging lending, and developing tax credits for new hires and for investments in equipment and facilities.

On Friday, January 29, 2010, the President introduced plans to give employers a $5,000 tax credit for each net new worker hired this year. The purpose is to jumpstart hiring. The credit would be based on an unemployment wage base and would require approximately $7,000 of wages to obtain the full $5,000 credit.

Start-up companies would get a $2,500 tax credit for each worker hired.

In addition there would be another credit – a second credit – refunding a portion of the employer’s social security match. The idea is to refund the match paid on wage increases in excess of the rate of inflation. This credit will be based on the social security wage base, so it will automatically cutoff at $106,800 (which is the maximum subject to social security in 2010).

There are anti-abuse provisions. You cannot fire employees and hire them right back, for example. You cannot go “out of business” and pop up the following day or week.

The White House wants the credits to be retroactive to January 1. They would exist only for 2010.

Employers would be able to claim the credit on a quarterly basis, both as an incentive to hire and to get cash into the economy.

By the way, not-for-profits would qualify for the credit.

There is a credit maximum of $500,000 per business. There is a second limit – the credit would cap at 25% of the increase in a business’ social security wage base.

The cost? About $33 billion.