To amend the Internal Revenue Code of 1986 to provide an exemption for employer payroll taxes during 2010 for wages with respect to the employment of new hires and to provide a credit for retaining employees.

SECTION 1. PAYROLL TAX FORGIVENESS FOR HIRING UNEMPLOYED WORKERS.

    (a) In General.--Section 3111 is amended by adding at the end the 
following new subsection:
    ``(d) Special Exemption for Certain Individuals Hired in 2010.--
            ``(1) In general.--Subsection (a) shall not apply to wages 
        paid by a qualified employer with respect to employment during 
        the period beginning on the day after the date of the enactment 
        of this subsection and ending on December 31, 2010, of any 
        qualified individual for services performed--
                    ``(A) in a trade or business of such qualified 
                employer, or
                    ``(B) in the case of a qualified employer exempt 
                from tax under section 501(a), in furtherance of the 
                activities related to the purpose or function 
                constituting the basis of the employer's exemption 
                under section 501.
            ``(2) Qualified employer.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified employer' 
                means any employer other than the United States, any 
                State, or any political subdivision thereof, or any 
                instrumentality of the foregoing.
                    ``(B) Treatment of employees of post-secondary 
                educational institutions.--Notwithstanding subparagraph 
                (A), the term `qualified employer' includes any 
                employer which is a public institution of higher 
                education (as defined in section 101(b) of the Higher 
                Education Act of 1965).
            ``(3) Qualified individual.--For purposes of this 
        subsection, the term `qualified individual' means any 
        individual who--
                    ``(A) begins employment with a qualified employer 
                after February 3, 2010, and before January 1, 2011,
                    ``(B) certifies by signed affidavit, under 
                penalties of perjury, that such individual has not been 
                employed for more than 40 hours during the 60-day 
                period ending on the date such individual begins such 
                employment,
                    ``(C) is not employed by the qualified employer to 
                replace another employee of such employer unless such 
                other employee separated from employment voluntarily or 
                for cause, and
                    ``(D) is not an individual described in section 
                51(i)(1) (applied by substituting `qualified employer' 
                for `taxpayer' each place it appears).
            ``(4) Election.--A qualified employer may elect to have 
        this subsection not apply. Such election shall be made in such 
        manner as the Secretary may require.''.
    (b) Coordination With Work Opportunity Credit.--Section 51(c) is 
amended by adding at the end the following new paragraph:
            ``(5) Coordination with payroll tax forgiveness.--The term 
        `wages' shall not include any amount paid or incurred to a 
        qualified individual (as defined in section 3111(d)(3)) during 
        the 1-year period beginning on the hiring date of such 
        individual by a qualified employer (as defined in section 
        3111(d)) unless such qualified employer makes an election not 
        to have section 3111(d) apply.''.
    (c) Transfers to Federal Old-Age and Survivors Insurance Trust 
Fund.--There are hereby appropriated to the Federal Old-Age and 
Survivors Trust Fund and the Federal Disability Insurance Trust Fund 
established under section 201 of the Social Security Act (42 U.S.C. 
401) amounts equal to the reduction in revenues to the Treasury by 
reason of the amendments made by subsection (a). Amounts appropriated 
by the preceding sentence shall be transferred from the general fund at 
such times and in such manner as to replicate to the extent possible 
the transfers which would have occurred to such Trust Fund had such 
amendments not been enacted.
    (d) Effective Date.--The amendments made by this section shall 
apply to wages paid after the date of the enactment of this Act.

SEC. 2. BUSINESS CREDIT FOR RETENTION OF CERTAIN NEWLY HIRED 
              INDIVIDUALS IN 2010.

    (a) In General.--In the case of any taxable year ending after the 
date of the enactment of this Act, the current year business credit 
determined under section 38(b) of the Internal Revenue Code of 1986 for 
such taxable year shall be increased by an amount equal to the product 
of--
            (1) $1,000, and
            (2) the number of retained workers with respect to which 
        subsection (b)(2) is first satisfied during such taxable year.
    (b) Limitation.--The increase determined under subsection (a) with 
respect to any retained worker shall not exceed an amount equal to 4 
percent of the wages (as defined in section 3401(a) of the Internal 
Revenue Code of 1986) with respect to such retained worker for the 52 
consecutive week period described in subsection (c)(2).
    (c) Retained Worker.--For purposes of this section, the term 
``retained worker'' means any qualified individual (as defined in 
section 3111(d)(3) of the Internal Revenue Code of 1986)--
            (1) who was employed by the taxpayer on any date during the 
        taxable year,
            (2) who was so employed by the taxpayer for a period of not 
        less than 52 consecutive weeks, and
            (3) whose wages for such employment during the last 26 
        weeks of such period equaled at least 80 percent of such wages 
        for the first 26 weeks of such period.
    (d) Limitation on Carrybacks.--No portion of the unused business 
credit under section 38 of the Internal Revenue Code of 1986 for any 
taxable year which is attributable to the increase in the current year 
business credit under this section may be carried to a taxable year 
beginning before the date of the enactment of this section.

Summary: Amends the Internal Revenue Code to: (1) exempt for-profit and nonprofit employers, including public institutions of higher education, from social security taxes in 2010 for new employees who are hired after February 3, 2010, and before January 1, 2011, and who certify that they have not worked more than 40 hours during the last 60 days; and (2) allow an increase in the general business tax credit for the retention of such employees for at least one year at specified wage levels. Prohibits any carryback of unused business tax credit amounts.

Appropriates to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund under title II of the Social Security Act amounts necessary to cover any reduction in revenues resulting from the tax exemptions provided by this Act.