Code Section 38
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 38(b) | 3/18/2010 | The Hiring Incentives to Restore Employment Act | Business Credit for Retention of Certain Newly Hired Individuals in 2010 | -5,422 |
| 38 | 12/31/2009 | The Small Business Jobs Act of 2010 | General business credit of eligible small business not subject to alternative minimum tax | -977 |
Business Credit for Retention of Certain Newly Hired Individuals in 2010
Explanation of Provision
In general
Under the provision, an employer’s general business credit is increased by the lesser of $1,000 or 6.2 percent of wages for each retained worker that satisfies a minimum employment period. Generally, a retained worker is an individual who is a qualified individual as defined under the payroll tax forgiveness provision, above (new Code sec. 3111(d)). However, the credit is available only with respect to such an individual, if the individual: (1) is employed by the employer on any date during the taxable year; (2) continues to be employed by the employer for a period of not less than 52 consecutive weeks; and (3) receives wages for such employment during the last 26 weeks of such period that are least 80-percent of such wages during the first 26 weeks of such period.
The portion of the general business credit attributable to the retention credit may not be carried back to a taxable year that begins prior to the date of enactment of this provision (March 18, 2010).
Treatment of the U.S. possessions
Mirror code possessions 354
The U.S. Treasury will make a payment to each mirror code possession in an amount equal to the aggregate amount of the credits allowable by reason of the provision to that possession’s residents against its income tax. This amount will be determined by the Treasury Secretary based on information provided by the government of the respective possession. For purposes of this payment, a possession is a mirror code possession if the income tax liability of residents of the possession under that possession’s income tax system is determined by reference to the U.S. income tax laws as if the possession were the United States.
Non-mirror code possessions 355
To each possession that does not have a mirror code tax system, the U.S. Treasury will make a payment in an amount estimated by the Secretary as being equal to the aggregate credits that would have been allowed to residents of that possession if a mirror code tax system had been in effect in that possession. Accordingly, the amount of each payment to a non-mirror code possession will be an estimate of the aggregate amount of the credits that would be allowed to the possession’s residents if the credit provided by the provision to U.S. residents were provided by the possession to its residents. This payment will not be made to any U.S. possession unless that possession has a plan that has been approved by the Secretary under which the possession will promptly distribute the payment to its residents.
General rules
No credit against U.S. income taxes is permitted under the provision for any person to whom a credit is allowed against possession income taxes as a result of the provision (for example, under that possession’s mirror income tax). Similarly, no credit against U.S. income taxes is permitted for any person who is eligible for a payment under a non-mirror code possession’s plan for distributing to its residents the payment described above from the U.S. Treasury.
For purposes of the rebate credit payment, the Commonwealth of Puerto Rico and the Commonwealth of the Northern Mariana Islands are considered possessions of the United States.
For purposes of the rule permitting the Treasury Secretary to disburse appropriated amounts for refunds due from certain credit provisions of the Internal Revenue Code of 1986, the payments required to be made to possessions under the provision are treated in the same manner as a refund due from the recovery rebate credit.
General business credit of eligible small business not subject to alternative minimum tax
Explanation of Provision
The Act provides that the tentative minimum tax is treated as being zero for eligible small business credits. Thus, an eligible small business credit may offset both regular and alternative minimum tax liability. Under the provision, eligible small business credits are defined as the sum of the general business credits determined for the taxable year with respect to an eligible small business. An eligible small business is, with respect to any taxable year, a corporation, the stock of which is not publicly traded, or a partnership, which meets the gross receipts test of section 448(c), substituting $50 million for $5 million each place it appears.1323 In the case of a sole proprietorship, the gross receipts test is applied as if it were a corporation. Credits determined with respect to a partnership or S corporation are not treated as eligible small business credits by a partner or shareholder unless the partner or shareholder meets the gross receipts test for the taxable year in which the credits are treated as current year business credits.
354- Possessions with mirror code tax systems are the United States Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
-Return to Explanation of Provision
355- Possessions that do not have mirror code tax systems are Puerto Rico and American Samoa.
-Return to Explanation of Provision
1323- For example, a calendar year corporation meets the $50 million gross receipts test for the 2010 taxable year, if as of January 1, 2010, if its average annual gross receipts for the 3-taxableyear period ending December 31, 2009, does not exceed $50 million. The aggregation and special rules under sections 448(c)(2) and (3) apply for purposes of the test.
-Return to Explanation of Provision
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