ITG FAQ #1 Answer-What tax credits are available to businesses that employ Native Americans?

 

There are three employment tax credits generally available to businesses that do business with or employ Native Americans:

  • Empowerment Zone Employment Credit (section 1396) 

The tax credit for certain employers that operate in an empowerment zone has been extended through December 31, 2020. Under this credit, an employer may claim a 20% credit on up to the first $15,000 of wages paid to certain employees.  Substantially all of the services must be provided in the employer’s trade or business within an empowerment zone, and the employee’s principle residence while providing the services must be within the empowerment zone.

Note: To extend the designations, state and local governments must amend their nominations of the designated zones in order to move the termination date to December 31, 2020.

  • Indian Employment Credit (section 45A)

The Indian employment tax credit has been extended through December 31, 2020. In general, this credit may entitle an employer to a 20% tax credit on a portion of the qualified wages and employee health insurance costs paid to an enrolled member of an Indian tribe or the enrolled member’s spouse.  To qualify, substantially all of the services must be performed by such an employee within an Indian reservation, and the employee’s principle residence while providing the services must be on or near the reservation where the services are performed.

Note: This credit was retroactively extended for 2018, 2019 and 2020. It will expire for wages paid or incurred in tax years beginning after 12/31/2020 without another extension.

  • Work Opportunity Credit (section 51)

The work opportunity tax credit has been extended through December 31, 2020. In general, the Work Opportunity Credit provides a 40% tax credit on the first $6,000 of wages paid to members of certain targeted groups.  The maximum qualified wages for any employee certified as a long-term family assistance recipient is limited to $10,000 per year. The maximum qualified first year wages for certain veterans increases to $12,000, $14,000 or $24,000.  

Beginning after December 31, 2015, a modification to the Work Opportunity Credit extends the credit to include employers who hire qualified long-term unemployment recipients.  A qualified long-term unemployment recipient is an individual certified as being unemployed for at least 27 weeks and was who was receiving unemployment compensation under State or Federal law. This credit against income tax is generally not applicable to Indian tribal governments.

 

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