The Bipartisan Budget Act of 2018, signed last week by President Trump, includes extensions of three tax incentives that benefit Indian employment and economic development on Indian reservations. These incentives had expired on December 31, 2016; the Budget Act extends them retroactively for one year through December, 2017.
Indian Employment Tax Credit
The Indian Employment Tax Credit provides businesses with an incentive to hire enrolled tribal members and their spouses who live on or near an Indian reservation.
- 20% income tax credit for the first $20,000 of qualified wages and qualified employee health insurance costs for any Indian tribal member or spouse employed by a private business operating on an Indian reservation.
- Employees who make more than $45,000 per year are nonqualified for this credit and employers only qualify for the credit based on the first $20,000 of qualified wages and health insurance costs that are paid to employees. The credit can reach up to $4,000 per employee, which could potentially contribute a significant sum towards reducing a businessâ€™ overall tax liability.
- The provision is not applicable to tribal governments or nonprofits who employ tribal members.
Accelerated Depreciation for Business Property on Indian Reservations
Section 168(j) in the Internal Revenue Code (IRC) allows for the accelerated depreciation for business property on Indian reservations tax credit.
- This credit authorizes businesses that operate on Indian reservations to depreciate qualifying property and infrastructure investments at an accelerated rate.
- The incentive helps companies to defer taxes in an assetâ€™s earlier years, as a higher depreciation expense results in a lower taxable net income.
- Accelerated depreciation is a critical component of attracting capital-intensive projects on reservations and can bring high-skilled jobs to Indian communities.
Indian Coal Production Tax Credit
The Indian Coal Production Tax Credit (ICPTC) provides a tax credit designed to incentivize investment on Indian lands and the hiring of Indian people.
- The ICPTC provides a crucial incentive for the development of tribal coal resources that are currently subject to more regulatory requirements than comparable coal development on private, state or federal lands
- The ICPTC permits a production tax credit of $2.00 per ton of coal produced on land owned by an Indian tribe.
- The credit entices industry partners to make investments on tribal lands to further development of coal resources. However, the lack of certainty in the future of this tax provision undermines the ability to attract larger, long-term investments
REDW works with Tribes and their enterprises to develop strategies that strengthen Tribal communities. For more information or questions about these tax incentives, or other accounting related topics impacting Tribes, please contact Corrine Wilson or Sandy Abalos.
View the full text of the 2018 Budget Act.Â The Indian Tax Extenders are referenced in Sections 40301, 40306, 40312, and 40408.