§45A Indian Employment Credit

Summary

Employers can take a tax credit equal to 20% of the extra money they pay in a year for certain wages and employer-paid employee health insurance compared with what they paid in 1993. The credit is 20% of (this year’s qualified wages + qualified health insurance costs) minus (the same amounts paid in 1993). For each employee, the total wages plus health insurance that count can’t be more than $20,000. Wages already used for the work opportunity credit don’t count here for 1 year (or for 2 years in a special case). Health insurance paid through an employee’s salary reduction does not count. Qualified wages = pay for work by a qualified employee. Qualified health insurance costs = amounts the employer pays for health coverage for a qualified employee (not salary reductions). Qualified employee = an enrolled member of an Indian tribe or the spouse of one, who mostly works on an Indian reservation and lives on or near that reservation while working. A worker is not a qualified employee if paid over $30,000 in a year (that $30,000 is adjusted for inflation for years after 1994 using the usual method, with base quarter Oct. 1, 1993). The work must be mostly for the employer’s trade or business (over 50% of wages). The rule also excludes certain owners, some people doing Indian gaming, and some other individuals listed in another tax rule. If the employee leaves before one year, the employer loses the credit for that worker and must add back earlier credits, except when the worker quits, becomes disabled, or is fired for misconduct; business reorganizations where the worker keeps the job do not count as a break. Employers in a controlled group are treated as one employer and share the credit. For short tax years the 1993 base is prorated by days/365. The credit does not apply to tax years beginning after December 31, 2021.