New tax laws offer incentives to small businesses to hire unemployed people before the end of the year. These incentives apply to employers who fill newly created positions, as well as existing positions.

On March 18^th, President Obama signed the HIRE Act, which stands for, “Hiring Incentives Restore Employment.” The act effectively reduces the amount of Social Security taxes the employer pays for the employee. Typically, this amounts to 6.2% of the employee’s wages. Employees will still have to pay their own share of Social Security taxes, but employers get a significant break.

In addition, the act offers a $1,000 per employee tax credit for employees who remain on the payroll for at least a year. As long as the employee’s wages did not decrease significantly during the 2cd half of the year, businesses can claim a $1,000 new hire retention credit on the business tax returns.

Claiming these benefits is quite simple, but employers should keep the following in mind. Firstly, qualifying new employees must sign an affidavit about their unemployment status. Specifically, they cannot have worked more than a total of 40 hours during the 60 days preceding their new hiring. The employer should retain the signed statement with payroll records. Secondly, family members and other relatives do not qualify. While small business owners usually benefit by hiring family, in this case, they lose out on the tax breaks of hiring the unemployed.