President Signs Jobs Bill Extending Section 179 Expensing Again

President Obama has signed into law the Hiring Incentives to Restore Employment, HIRE Act of 2010 (H.R. 2847/Public Law 111- 147) that extends once again enhanced IRC Section 179 Expensing through 2010. The job creation measure also contains new temporary payroll tax forgiveness, and a retention credit.

The 2008 Economic Stimulus Act increased Section 179 expensing from $128,000 to $250,000, and increased from $250,000 to $800,000 the threshold after which it is phased out. The American Recovery and Reinvestment Act stimulus legislation of 2009 extended the temporary increases of the 2008 legislation through 2009.

In general, qualifying property is defined as depreciable tangible personal property that is purchased for use in the active conduct of a trade or business, and it must be placed-inservice before January 1, 2011. Off-the-shelf computer software also qualifies.

The new law also maintains the $250,000 limit on capital investment in 2010 that can be expensed for companies that purchase less than $800,000 of capital assets in the year. The $250,000 expensing amount is reduced (but not below zero) by the amount by which the cost of qualifying property placed-in-service during the taxable year exceeds $800,000. The entire $250,000 of enhanced expensing is phased-out after the taxpayer invests $1,050,000. Enhanced Section 179 expensing applies to equipment that is new or used (“new to the purchaser”).

In contrast to enhanced expensing, bonus depreciation, which also greatly reduces the cost of capital investments, expired at the end of 2009 and has yet to be renewed notwithstanding the President’s Fiscal Year 2011 Budget proposal to extend it through the end of 2010. NPES and other business organizations continue to push for such an extension to be included in other jobs/tax bills that may advance this year.

The new HIRE Act also reduces the payroll tax obligation for the remainder of calendar 2010 for an employer that hires a “qualified” unemployed “individual,” and permits the employer to take a one-time tax credit if the employer retains the individual for at least a yea r. The following definitions apply:

• Payroll Tax: The employer’s share (6.2%) of Social Security portion of FICA taxes limited to no more than $106,800 of wages.

• Qualified Employer: IRS includes businesses, agricultural employers, tax exempt organizations, and public colleges and universities.

Household employers are excluded.

• Qualified Employee: One that is employed after February 3, 2010, with taxes “forgiven” on wages after HIRE date of enactment, which was March 18, 2010.

• Qualified Individual: An individual who:

Begins work after February 3, 2010 and before January 1, 2011;

Certifies that they have not been employed for more than 40 hours during 60-day period before date of employment;

Is not employed by the employer to replace another employee of the employer unless the other employee separated voluntarily or for cause; and,
Is not related to a major owner of the business.

In addition to the tax forgiveness, the employer will receive a business tax credit of the lesser of $1,000 or 6.2% of wages paid during a 52 consecutive week period for each “retained worker” as follows:

• Retained Worker hired under the conditions qualifying for tax forgiveness;

• Employed for a period of not less than 52 consecutive weeks; and,

• Wages during last 26 weeks must be at least 80%.