What is the Indian Employment Credit?
The Indian Employment Credit is a monetary incentive in the form of a tax credit provided by the United States federal government to employers who hire registered Native Americans, also known 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 gives a 20% tax credit on eligible income and benefits and is intended to encourage firms to recruit certain individuals. The Indian Employment Credit was set to expire on December 31, 2007, but it has been regularly extended by acts of Congress and is still in existence as of 2020. 1
Understanding the Indian Employment Credit
Although the wording around the Indian Employment Credit should be improved, the credit’s goal is to provide additional incentives for firms to recruit a historically disadvantaged demographic. The Indian Employment Credit is a tax credit provided by the United States government via the IRS to companies that hire Native Americans or their spouses who reside on or near reservations. Employers may deduct eligible salaries and qualified employee health insurance expenditures for each qualified employee hired.
Qualified earnings are all wages received to a qualified employee that do not qualify for the Work Opportunity Credit as reported on IRS Form 8845 for the purposes of the Indian Employment Credit. Expenses paid or spent by an employer for health insurance coverage for a qualified employee while the employee is a qualified employee are referred to as qualified employee health insurance costs. A qualifying employee must be an enrolled member of a Native American tribe or the spouse of an enrolled member of a Native American tribe, work on a reservation, and reside on or near a reservation. 2
Some Native American workers, such as those whose pay from the firm do not exceed a particular IRS level, those who control 5% of the company, and those whose job is tied to certain casino operations, will not qualify the employer for the tax credit.
Reporting the Indian Employment Credit
The Indian Employment Credit, although having a single name, is recorded differently for employers with various company formats. To claim the credit, partnerships and S companies must file IRS Form 8845, Indian Employment Credit. Employers that are estates or trusts record the credit on IRS Form 8845, General Business Credit, depending on whether the source credit originates from a beneficiary. 2 Before selecting where to submit the Indian Employment Credit, cooperatives must first assess their entire tax burden. Other firms must record the credit on IRS Form 3800.3.
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