8845 Instructions for Form 8845

2016

Instructions for Form 8845

Department of the Treasury
Internal Revenue Service

Indian Employment Credit
Section references are to the Internal Revenue Code
unless otherwise noted.

Future Developments

For the latest information about developments related to
Form 8845 and its instructions, such as legislation
enacted after they were published, go to www.irs.gov/
form8845.

General Instructions
Purpose of Form

Employers of American Indians who are qualified
employees use Form 8845 to claim the Indian
employment credit.
Partnerships and S corporations must file this form to
claim the credit. All others are generally not required to
complete or file this form if their only source for this credit
is a partnership, S corporation, estate, trust, or
cooperative. Instead, they can report this credit directly on
Form 3800, General Business Credit. The following
exceptions apply.
You are an estate or trust and the source credit can be
allocated to beneficiaries. For more details, see the
instructions for Form 1041, Schedule K-1, box 13, code L.
You are a cooperative and the source credit can or
must be allocated to patrons. For more details, see the
instructions for Form 1120-C, Schedule J, line 5c.

Definitions

Qualified wages means any wages paid or incurred by
an employer for services performed by an employee while
such employee is a qualified employee (see below). It
doesn’t include wages attributable to services rendered
during the 2-year period beginning with the day the
employee starts work for the employer if any portion of
such wages is used in figuring the work opportunity credit
on Form 5884. Wages has the same meaning given in
section 51.
Qualified employee health insurance costs means
any amount paid or incurred by an employer for health
insurance coverage for an employee while the employee
is a qualified employee. Don’t include amounts paid or
incurred for health insurance under a salary reduction
agreement.

Qualified employee means, for any tax period, any
employee who meets all three of the following tests.
1. The employee is an enrolled member, or the
spouse of an enrolled member, of an Indian tribe. Each
tribe determines who qualifies for enrollment and what
documentation, if any, is issued as proof of enrollment
status. Examples of appropriate documentation will vary
from one tribe to another and may include a tribal
membership card, Certified Degree of Indian Blood
Dec 19, 2016

(CDIB) card, or letter from the tribe or tribal enrollment
office. Employers should retain a copy of the proof of
enrollment status provided by the employee.
2. Substantially all the services performed by the
employee for the employer are performed within an Indian
reservation (defined below).
3. The employee's principal residence while
performing such services is on or near the reservation
where the services are performed.
However, the employee shall be treated as a qualified
employee for any tax year only if more than 50% of the
wages paid or incurred by the employer to the employee
during the tax year are for services performed in the
employer's trade or business. Each member of a
controlled group must meet this requirement
independently. Also, see the instructions for lines 1 and 2.
The following are not qualified employees.
Any individual who bears any of the relationships
described in sections 152(d)(2)(A) through 152(d)(2)(G)
to, or is a dependent described in section 152(d)(2)(H) of,
the employer.
If the employer is a corporation, any individual who
bears any of the relationships described in sections
152(d)(2)(A) through 152(d)(2)(G) to, or is a dependent
described in section 152(d)(2)(H) of, an individual who
owns (or is considered to own under section 267(c)) more
than 50% in value of the outstanding stock of the
corporation.
If the employer is an estate or trust, any individual who
is a grantor, beneficiary, or fiduciary of the estate or trust
(or a dependent, as described in section 152(d)(2)(H), of
that individual), or any individual who is a relative, as
described in sections 152(d)(2)(A) through 152(d)(2)(G),
of the grantor, beneficiary, or fiduciary of the estate or
trust.
If the employer is other than a corporation, estate, or
trust, any individual who owns directly or indirectly more
than 50% of the capital and profits interest, including
constructive ownership, in the entity.
If the employer is a corporation, any person who owns
(or is considered to own under section 318) more than 5%
of the outstanding or voting stock of the employer or, if not
a corporate employer, more than 5% of the capital or
profits interest in the employer.
Any individual who performs services involving the
conduct of Class I, II, or III gaming, as defined in section 4
of the Indian Gaming Regulatory Act, and any individual
performing any services in a building housing such
gaming activity.
Indian tribe means any Indian tribe, band, nation,
pueblo, or other organized group or community, including
any Alaska Native village or regional or village
corporation, as defined in, or established under, the
Alaska Native Claims Settlement Act, that is recognized

Cat. No. 66389C

Line 1

as eligible for the special programs and services provided
by the United States to Indians because of their status as
Indians. See the Federal Register dated October 1, 2010
(75 FR 60810), for the most recent listing of federally
recognized Indian tribes.
Indian reservation means a reservation as defined in
section 3(d) of the Indian Financing Act of 1974 or section
4(10) of the Indian Child Welfare Act of 1978.

Enter the total qualified wages and qualified employee
health insurance costs paid or incurred for qualified
employees during the tax year. An employee isn’t a
qualified employee if the total amount of wages paid or
incurred by the employer to the employee during the tax
year (whether or not for services within an Indian
reservation) exceeds $45,000.

Early Termination of Employee

Line 2

Generally, if the employer terminates a qualified employee
less than 1 year after the date of initial employment, the
following rules apply.
No wages or qualified employee health insurance costs
may be taken into account for the tax year the
employment is terminated.
Any credits allowed for prior tax years by reason of
wages paid or incurred to that employee must be
recaptured. Include the recapture amount on the line for
recapture taxes on your income tax return. Also, any
carryback or carryover of the credit must be adjusted.

Enter the total qualified wages and qualified employee
health insurance costs paid or incurred by the employer
(or predecessor) for qualified employees during calendar
year 1993 (as if section 45A had been in effect during
1993). If none, enter zero. For this purpose, an employee
isn’t a qualified employee if the total amount of wages
paid or incurred by the employer to the employee during
calendar year 1993 (whether or not for services within an
Indian reservation) exceeds $30,000.

Line 4

Generally, you must reduce the deductions on your return
for salaries and wages and health insurance costs by the
credit on line 4, even if you can’t take the full credit this
year because of the tax liability limit. If you capitalized any
costs on which you figured the credit, reduce the amount
capitalized by the credit attributable to these costs.

These rules do not apply if:
The employee voluntarily quits,
The employee is terminated because of misconduct, or
The employee becomes disabled. However, if the
disability ends during the first year of employment, the
employer must offer reemployment to that employee.

Line 5

An employee isn’t treated as terminated if the corporate
employer is acquired by another corporation covered
under the rules in section 381(a) and the employee
continues to be employed by the acquiring corporation.
Nor is a mere change in the form of conducting the trade
or business treated as a termination if the employee
continues to be employed in such trade or business and
the taxpayer retains a substantial interest in such trade or
business.

Enter total Indian employment credits from:
Schedule K-1 (Form 1065), Partner's Share of Income,
Deductions, Credits, etc., box 15 (code P);
Schedule K-1 (Form 1120S), Shareholder's Share of
Income, Deductions, Credits, etc., box 13 (code P);
Schedule K-1 (Form 1041), Beneficiary's Share of
Income, Deductions, Credits, etc., box 13 (code L); and
Form 1099-PATR, Taxable Distributions Received
From Cooperatives, box 10, or other notice of credit
allocation.

Member of Controlled Group or
Business Under Common Control

Partnerships and S corporations must always report the
above credits on line 5. Also, estates and trusts that can
allocate the above credits to beneficiaries and
cooperatives that can allocate the above credits to
patrons must always report these credits on line 5. All
other filers figuring a separate credit on earlier lines must
also report the above credits on line 5. All others not using
earlier lines to figure a separate credit can report the
above credits directly on Form 3800, Part III, line 1g.

For purposes of figuring the credit, all members of a
controlled group of corporations (as defined in section
52(a)) and all members of a group of businesses under
common control (as defined in section 52(b)), are treated
as a single employer. As a member, figure your credit
based on your proportionate share of qualified wages and
qualified employee health insurance costs giving rise to
the group's Indian employment credit. Enter your share of
the credit on line 4. Attach a statement showing how your
share of the credit was figured, and write “See Attached”
next to the entry space for line 4.

Line 7
Cooperatives. A cooperative described in section
1381(a) must allocate to its patrons the credit in excess of
its tax liability limit. Therefore, to figure the unused amount
of the credit allocated to patrons, the cooperative must
first figure its tax liability. While any excess is allocated to
patrons, any credit recapture applies as if the cooperative
had claimed the entire credit.
If the cooperative is subject to the passive activity rules,
include on line 5 any Indian employment credit from
passive activities disallowed for prior years and carried
forward to this year. Complete Form 8810, Corporate
Passive Activity Loss and Credit Limitations, to determine

Specific Instructions
Figure the credit for your trade or business on lines 1
through 4. The following rules apply for lines 1 and 2.
The total amount of qualified wages and qualified
employee health insurance costs for each qualified
employee for any tax year is limited to $20,000.
For a short tax year, multiply the wages limit by the
number of days in the short tax year and divide the result
by 365.
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Instructions for Form 8845 (2016)

the allowed credit that can be allocated to patrons. For
details, see the Instructions for Form 8810.

passive activities disallowed for prior years and carried
forward to this year. Complete Form 8582-CR, Passive
Activity Credit Limitations, to determine the allowed credit
that must be allocated between the estate or trust and the
beneficiaries. For details, see the Instructions for Form
8582-CR.

Estates and trusts. Allocate the Indian employment
credit on line 6 between the estate or trust and the
beneficiaries in the same proportion as income was
allocated and enter the beneficiaries' share on line 7.
If the estate or trust is subject to the passive activity
rules, include on line 5 any Indian employment credit from

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it to ensure that you are complying with these laws
and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be
retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax
returns and return information are confidential, as required by section 6103.

h

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden
for individual and business taxpayers filing this form is approved under OMB control number 1545-0074 and 1545-0123
and is included in the estimates shown in the instructions for their individual and business income tax return. The
estimated burden for all other taxpayers who file this form is shown below.
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 hr., 25 min.
6 min.
7 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler,
we would be happy to hear from you. See the instructions for the tax return with which this form is filed.

Instructions for Form 8845 (2016)

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