Indian Employment Credit

What is the Indian Employment Credit?

The Indian Employment Credit is a monetary incentive in the form of a tax credit offered by the United States federal government to employers who hire registered Native Americans, referred to as "Native American Indians" or "American Indians" in Internal Revenue Service (IRS) documentation, and spouses of registered Native Americans, who live on or near a Native American reservation and work for an employer on that reservation.

The tax credit provides a 20% tax credit on qualified income and benefits, and is designed to create an incentive for employers to hire certain workers. The Indian Employment Credit initially expired December 31, 2007, but has been extended repeatedly by acts of Congress and is in effect as of 2020.

Understanding the Indian Employment Credit

Although the terminology behind the Indian Employment Credit could use an update, the intention of the credit it is to create more incentives for employers to hire a historically disadvantaged group. The Indian Employment Credit is a tax credit offered by the United States government through the IRS to employers who hire Native Americans or spouses of Native Americans who live on or near reservations. Employers are allowed to deduct qualified wages and qualified employee health insurance costs for every qualified employee they hire.

For the purposes of the Indian Employment Credit, qualified wages are all wages paid to a qualified employee except for those that qualify for the Work Opportunity Credit reported on IRS Form 8845. Qualified employee health insurance costs are costs paid or incurred by an employer for health insurance coverage for a qualified employee while the employee is a qualified employee. A qualified employee must be an enrolled member or spouse of an enrolled member of a Native American tribe, perform employment duties on a reservation and live on or near a reservation.

Some Native American employees will not qualify the employer for the tax credit, including those whose wages from the company do not meet a certain threshold specified by the IRS, those who are 5 percent owners of the company, and those whose work is related to certain gaming activities.

Reporting the Indian Employment Credit

The Indian Employment Credit has one name is reported differently for employers with different business structures. Partnerships and S corporations must use IRS Form 8845, Indian Employment Credit, to claim the credit. Employers that are estates or trusts report the credit on Form 8845 or IRS Form 3800, General Business Credit, depending on whether the source credit comes from a beneficiary. Cooperatives must determine the total tax liability before determining where to report the Indian Employment Credit. Other types of businesses report the credit on IRS Form 3800.