Helping Indigenous clients achieve their financial goals

The financial needs of Indigenous peoples in the United States can vary widely from those of their non-Indigenous counterparts, and many Indigenous families do not fit the stereotype of the typical American family. It is important that CPAs and other accounting professionals understand the financial needs of these communities, as well as the barriers to financial access they face, in order to better serve them.

The impact of COVID-19

Data from the Centers for Disease Control & Prevention shows that the COVID-19 pandemic has had a disproportionately negative impact on the Native American and Native Alaskan populations (AI / AN). This is in part due to persistent racial inequalities and historical trauma, which have contributed to disparities between health and socio-economic factors in AI / AN and white populations.

According to an analysis by the Urban Institute, a non-profit research organization, people living in predominantly Indigenous communities in 2020 experienced “persistently high rates and levels of delinquent debt.” Almost 16% of people in predominantly Indigenous communities relied on high-cost lenders (such as payday loans or pawn shops) to meet their needs in 2020, compared with only around 4% of predominantly white communities and 6% of communities of color, says the Urban Institute. Indigenous communities also experience high rates of delinquency and subprime credit.

Do Native Americans Pay Taxes?

While federally recognized Native American tribes are generally not subject to federal income tax, Native American individuals are subject to federal income and employment taxes and the tax provisions of the Internal Revenue Code (IRC), like all U.S. citizens, even if they live on reserves. It is also important to note that, contrary to popular belief, AI / AN peoples generally do not receive payments from the federal government simply because they are Native Americans.

Tribal citizens living on a reserve (tax-free trust land) fall under tribal jurisdiction and do not pay local or state property or income taxes. However, indigenous individuals and tribes pay state and local property taxes “within reserve boundaries if the land is not held in trust by the federal government,” according to the Poynter Institute, a journalism school and institute. nonprofit research.

According to the Native American Rights Fund (NARF), “[f]funds distributed to a person of Indian descent may represent mining rental income on property held in trust by the United States or compensation for land taken under government projects. Some tribes receive benefits from the federal government due to treaty obligations or for the extraction of natural resources, “a percentage of which can be distributed per capita among tribal members,” according to the NARF.

In general, AI / AN peoples pay the same taxes as other citizens. The US Bureau of Indian Affairs notes the following exceptions:

  • Federal income taxes are not levied on income from trust lands held for them by the United States
  • State income taxes are not paid on income earned on a Federal Reserve
  • State sales taxes are not paid by Native Americans on transactions made on a Federal Reserve
  • Local property taxes are not paid on land reserved or in trust

Help AI / AN clients with taxes

If you have a client who identifies as an American Indian or Alaskan Native, you should familiarize yourself with the following tax credits to ensure that you can offer them the most comprehensive advice on their taxes.

Earned income tax credit

The Working Income Tax Credit (EITC) helps low-to-moderate income workers and families get tax relief. Analysis earlier this year by the Center on Budget and Policy Priorities (CBPP) showed that hundreds of thousands of IA / AN individuals would benefit from an increase in the maximum EITC for working adults without children, who are often imposed deeper into poverty.

“Ultimately, the proposal would benefit approximately 485,000 American Indians and Alaska Natives nationwide, including approximately 61,300 in California, 41,400 in Oklahoma and 31,800 in Arizona,” notes the CBPP, a non-partisan research and policy institute.

The IRS urges Native American taxpayers to check whether they qualify for the EITC, as many workers in tribal communities often overlook this credit. To qualify for the credit, taxpayers must follow basic rules and must have income from employment, be self-employed or operate their own business. This includes home businesses and work in the service industry, construction and agriculture.

Advanced Child Tax Credit

In March, President Joe Biden enacted a bill that fundamentally restructures the one-year child tax credit under the American Rescue Plan Act. The new policy increases the maximum age of an eligible child from 16 to 17 and increases the maximum credit amount per child, with larger increases for younger children. Credit will be given periodically, rather than as a lump sum.

According to researchers at Columbia University’s Center on Poverty and Social Policy (CPSP), the payments are expected to significantly reduce child poverty across all racial groups, but with particularly large reductions for black, Hispanic and Native American children. The child poverty rate among Native Americans is expected to drop from 17 percent to six percent because of the increase in family allowances under the provision, according to the CPSP.

Keep in mind that these guidelines apply to AI / AN individuals and do not cover taxation at the tribal level, which requires additional guidance from the IRS and follows additional federal guidance.

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