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The Indian Employment Tax Credit

Employers who hire Native American Indians are well advised to look into whether they qualify for the Indian Employment Tax Credit (IEC). As with other tax credits, qualified employers may receive a certain monetary incentive when they file their annual taxes.

What Exactly is the Indian Employment Credit?

The IEC is a monetary incentive provided in the form of a tax credit. It was first created and introduced in 1993. It is offered by the United States federal government to employers that hire employees who are registered Native Americans (referred to as “American Indians” or “Native American Indians” in IRS documentation). The credit provides a dollar-for-dollar reduction in the employer’s business taxable income.

Like many other tax credits, it was designed to incentivize employers to hire certain workers. These workers traditionally face barriers to employment. Credits create a win-win situation for both employees and employers. Employers who may consider hiring certain groups they have not considered before.  For employees, who may have an easier time finding work.

How Much is the IEC Worth?

The amount of the Indian employment credit is equal to 20% of the excess (if any) of:

  • The sum of qualified wages paid during the taxable year and the sum of qualified employee health insurance costs paid during the taxable year
  • The sum of qualified wages and qualified employee health insurance costs that were paid by the employer during the calendar year

It is important to note that for the purposes of this credit, qualified wages are all wages paid to a qualified employee, except for who also qualify for the Work Opportunity Tax Credit, which is reported using IRS Form 5884.

Who Qualifies for the IEC?

In order to qualify for this tax credit, the employee must:

  • Be either themselves a registered Native American or the spouse of a registered Native American (be an enrolled member of an Indian tribe). The term “Indian tribe” may include:
    • Any Indian tribe, band, nation, pueblo, or other organized community or group, including Alaska Native villages
  • Live on or near a Native American reservation while performing the services of their job
  • Complete all services for an employer within that reservation

Certain employees are not eligible. The term “qualified employee” does not include:

  • Individuals who receive wages in excess of $40,000
  • Those whose wages from the company do not meet certain thresholds that are specified by the IRS
  • Any employee who is a 5% owner of the company
  • Those whose work is related to certain gaming activities:
    • Services which involve the conduct of Class I, II, or III gaming as defined in section 4 of the Indian Gaming Regulatory Act
    • Services that are performed in a building that houses such gaming activity

How Do I File for This Tax Credit?

Although the IEC has the one name, it is reported differently, depending on the employer’s business structure:

  • S Corporations and Partnerships must use IRS form 8845
  • Employers that are trusts or estates report the credit on either form 8845 or form 3800, the General Business Credit, if the source credit comes from a beneficiary
  • Other types of businesses report using IRS form 3800

Anything Else I Need to Know?

It is important to understand that the Indian Employment Credit initially expired on December 31, 2007. However, it has been extended several times through acts of Congress. Currently, the IEC is indeed in effect as of 2018. If you are unsure whether the credit is expired, you can check on the IRS’s page for commonly used items which may be expired. This page is regularly updated, especially as the tax season approaches each year.

If you’re unsure whether you qualify for the Indian Employment Tax Credit, give the Tax Credit Group a call. We can help you determine your eligibility.

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