8845 Instructions for Form 8845

Instructions for Form 8845

Department of the Treasury
Internal Revenue Service

(Rev. January 2020)

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

instructions of the appropriate line for Form 1120-C,
Schedule J.

Future Developments

Example. For 2018, see the instructions for 2018
Form 1120-C, Schedule J, line 5c; for 2019, see the
instructions for 2019 Form 1120-C, Schedule J, line 5c.

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

What’s New
Credit extension and change in updating. The Indian
employment credit was retroactively extended for
qualified wages and qualified employee health insurance
costs paid or incurred in tax years 2018, 2019, and 2020.
Don't claim the credit for Indian employment for tax years
beginning after 2020 unless the credit is extended again.
Form 8845 and its instructions will no longer be
updated annually. Instead, they'll only be updated when
necessary. Use these instructions and the Form 8845
(Rev. January 2020) for tax years beginning after 2017.
For previous tax years, see the applicable Form 8845
and instructions.
Example. Use the 2017 Form 8845 with the 2017
Instructions for Form 8845 for tax year ending December
31, 2017.
For 2018 claims, use the Form 8845 (Rev.

TIP January 2020) because it has lines 1 through 4
available if needed.

General Instructions
Purpose of Form

Employers of American Indians who are qualified
employees use Form 8845 (Rev. January 2020) to claim
the Indian employment credit for tax years beginning after
2017.
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 of the appropriate box for Form 1041,
Schedule K-1.
Example. For 2018, see the instructions for 2018
Form 1041, Schedule K-1, box 13, code L; for 2019, see
the instructions for 2019 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
Jan 30, 2020

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 1-year period (if applicable, 2-year period if
employee is a long-term family assistance recipient under
section 51) 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.
See section 45A(b)(1) for details.
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
(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)

Cat. No. 66389C

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.

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
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 February 1, 2019
(84 FR 1200) and subsequent updates, 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.

Member of Controlled Group or
Business Under Common Control

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.

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.

Line 1

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 $50,000.

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.
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Instructions for Form 8845

Line 5

Partnerships and S corporations report the above
credits on line 5. Also, estates and trusts that can allocate
the source credit to beneficiaries and cooperatives that
can allocate the credit to patrons, report the above credits
on line 5. All other filers report the above credits directly
on Form 3800, Part III, line 1g, and don’t file Form 8845.

Enter the total Indian employment credits from the
appropriate box of:
• Schedule K-1 (Form 1065), Partner’s Share of Income,
Deductions, Credits, etc.
Example. For 2018, from the 2018 Schedule K-1
(Form 1065), box 15 (code P); for 2019, from the 2019
Schedule K-1 (Form 1065), box 15 (code P).
• Schedule K-1 (Form 1120-S), Shareholder’s Share of
Income, Deductions, Credits, etc.

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

Example. For 2018, from the 2018 Schedule K-1
(Form 1120-S), box 13 (code P); for 2019, from the 2019
Schedule K-1 (Form 1120-S), box 13 (code P).
• Schedule K-1 (Form 1041), Beneficiary’s Share of
Income, Deductions, Credits, etc.
Example. For 2018, from the 2018 Schedule K-1
(Form 1041), box 13 (code L); for 2019, from the 2019
Schedule K-1 (Form 1041), box 13 (code L).
• Form 1099-PATR, Taxable Distributions Received
From Cooperatives, or other notice of credit allocation.
Example. For 2018, from the 2018 Form 1099-PATR,
box 10; for 2019, from the 2019 Form 1099-PATR,
box 11; for 2020, from the 2020 Form 1099-PATR,
box 12.

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
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.

At the time these instructions went to print,
Schedule K-1s for tax years after 2019 and Form
CAUTION 1099-PATR for tax years after 2020 are not
available. To find the appropriate box for Indian
employment credit on Schedule K-1s after tax year 2019
and Form 1099-PATR after tax year 2020, go to IRS.gov/
Form8845.

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Instructions for Form 8845

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