To amend the Internal Revenue Code of 1986 to allow employers a credit against income tax with respect to employees who participate in the military reserve components and to allow a comparable credit for participating reserve component self-employed individuals.

June 10, 2003

Mr. BARRETT of South Carolina (for himself and Mr. WILSON of South Carolina) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to allow employers a credit against income tax with respect to employees who participate in the military reserve components and to allow a comparable credit for participating reserve component self-employed individuals.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Guardsmen and Reservist Employer Tax Act of 2003'.

SEC. 2. CREDIT FOR EMPLOYMENT OF RESERVE COMPONENT PERSONNEL.

(a) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business-related credits) is amended by adding at the end the following new section:

`SEC. 45G. RESERVE COMPONENT EMPLOYMENT CREDIT.

`(a) GENERAL RULE- For purposes of section 38, the reserve component employment credit determined under this section is an amount equal to the sum of--

`(1) the employment credit with respect to all qualified employees of the taxpayer, plus

`(2) the self-employment credit of a qualified self-employed taxpayer.

`(b) EMPLOYMENT CREDIT- For purposes of this section--

`(1) IN GENERAL- The employment credit with respect to a qualified employee of the taxpayer for any taxable year is equal to the excess, if any, of--

`(A) the qualified employee's average daily qualified compensation for the taxable year, over

`(B) the average daily military pay and allowances received by the qualified employee during the taxable year,

while participating in qualified reserve component duty to the exclusion of the qualified employee's normal employment duties for the number of days the qualified employee participates in qualified reserve component duty during the taxable year, including time spent in a travel status. The employment credit, with respect to all qualified employees, is equal to the sum of the employment credits for each qualified employee under this subsection.

`(2) AVERAGE DAILY QUALIFIED COMPENSATION AND AVERAGE DAILY MILITARY PAY AND ALLOWANCES- As used with respect to a qualified employee--

`(A) the term `average daily qualified compensation' means the qualified compensation of the qualified employee for the taxable year divided by the difference between--

`(i) 365, and

`(ii) the number of days the qualified employee participates in qualified reserve component duty during the taxable year, including time spent in a travel status, and

`(B) the term `average daily military pay and allowances' means--

`(i) the amount paid to the qualified employee during the taxable year as military pay and allowances on account of the qualified employee's participation in qualified reserve component duty, divided by

`(ii) the total number of days the qualified employee participates in qualified reserve component duty, including time spent in travel status.

`(3) QUALIFIED COMPENSATION- When used with respect to the compensation paid or that would have been paid to a qualified employee for any period during which the qualified employee participates in qualified reserve component duty, the term `qualified compensation' means--

`(A) compensation which is normally contingent on the qualified employee's presence for work and which would be deductible from the taxpayer's gross income under section 162(a)(1) if the qualified employee were present and receiving such compensation,

`(B) compensation which is not characterized by the taxpayer as vacation or holiday pay, or as sick leave or pay, or as any other form of pay for a nonspecific leave of absence, and with respect to which the number of days the qualified employee participates in qualified reserve component duty does not result in any reduction in the amount of vacation time, sick leave, or other nonspecific leave previously credited to or earned by the qualified employee, and

`(C) group health plan costs (if any) with respect to the qualified employee.

`(4) QUALIFIED EMPLOYEE- The term `qualified employee' means a person who--

`(A) has been an employee of the taxpayer for the 21-day period immediately preceding the period during which the employee participates in qualified reserve component duty, and

`(B) is a member of the Ready Reserve of a reserve component of an Armed Force of the United States as defined in sections 10142 and 10101 of title 10, United States Code.

`(c) SELF-EMPLOYMENT CREDIT-

`(1) IN GENERAL- The self-employment credit of a qualified self-employed taxpayer for any taxable year is equal to the excess, if any, of--

`(A) the self-employed taxpayer's average daily self-employment income for the taxable year over, and

`(B) the average daily military pay and allowances received by the taxpayer during the taxable year, while participating in qualified reserve component duty to the exclusion of the taxpayer's normal self-employment duties for the number of days the taxpayer participates in qualified reserve component duty during the taxable year, including time spent in a travel status.

`(2) AVERAGE DAILY SELF-EMPLOYMENT INCOME AND AVERAGE DAILY MILITARY PAY AND ALLOWANCES- As used with respect to a self-employed taxpayer--

`(A) the term `average daily self-employment income' means the self-employment income (as defined in section 1402) of the taxpayer for the taxable year plus the amount paid for insurance which constitutes medical care for the taxpayer for such year (within the meaning of section 162(l)) divided by the difference between--

`(i) 365, and

`(ii) the number of days the taxpayer participates in qualified reserve component duty during the taxable year, including time spent in a travel status, and

`(B) the term `average daily military pay and allowances' means--

`(i) the amount paid to the taxpayer during the taxable year as military pay and allowances on account of the taxpayer's participation in qualified reserve component duty, divided by

`(ii) the total number of days the taxpayer participates in qualified reserve component duty, including time spent in travel status.

`(3) QUALIFIED SELF-EMPLOYED TAXPAYER- The term `qualified self-employed taxpayer' means a taxpayer who--

`(A) has net earnings from self-employment (as defined in section 1402) for the taxable year, and

`(B) is a member of the Ready Reserve of a reserve component of an Armed Force of the United States.

`(d) CREDIT IN ADDITION TO DEDUCTION- The employment credit provided in this section is in addition to any deduction otherwise allowable with respect to compensation actually paid to a qualified employee during any period the qualified employee participates in qualified reserve component duty to the exclusion of normal employment duties.

`(e) LIMITATIONS-

`(1) MAXIMUM CREDIT-

`(A) IN GENERAL- The credit allowed by subsection (a) for the taxable year shall not exceed $25,000 with respect to each qualified employee.

`(B) CONTROLLED GROUPS- For purposes of applying the limitation in subparagraph (A)--

`(i) all members of a controlled group shall be treated as one taxpayer, and

`(ii) such limitations shall be allocated among the members of such group in such manner as the Secretary may prescribe.

For purposes of this subparagraph, all persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as members of a controlled group.

`(2) DISALLOWANCE FOR FAILURE TO COMPLY WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF MEMBERS OF THE RESERVE COMPONENTS OF THE ARMED FORCES OF THE UNITED STATES- No credit shall be allowed under subsection (a) to a taxpayer for--

`(A) any taxable year in which the taxpayer is under a final order, judgment, or other process issued or required by a district court of the United States under section 4323 of title 38 of the United States Code with respect to a violation of chapter 43 of such title, and

`(B) the 2 succeeding taxable years.

`(3) DISALLOWANCE WITH RESPECT TO PERSONS ORDERED TO ACTIVE DUTY FOR TRAINING- No credit shall be allowed under subsection (a) to a taxpayer with respect to any period for which the person on whose behalf the credit would otherwise be allowable is called or ordered to active duty for any of the following types of duty:

`(A) active duty for training under any provision of title 10, United States Code,

`(B) training at encampments, maneuvers, outdoor target practice, or other exercises under chapter 5 of title 32, United States Code, or

`(C) full-time National Guard duty, as defined in section 101(d)(5) of title 10, United States Code.

`(f) GENERAL DEFINITIONS AND SPECIAL RULES-

`(1) MILITARY PAY AND ALLOWANCES- The term `military pay' means pay as that term is defined in section 101(21) of title 37, United States Code, and the term `allowances' means the allowances payable to a member of the Armed Forces of the United States under chapter 7 of that title.

`(2) QUALIFIED RESERVE COMPONENT DUTY- The term `qualified reserve component duty' includes only active duty performed, as designated in the reservist's military orders, in support of a contingency operation as defined in section 101(a)(13) of title 10, United States Code.

`(3) NORMAL EMPLOYMENT AND SELF-EMPLOYMENT DUTIES- A person shall be deemed to be participating in qualified reserve component duty to the exclusion of normal employment or self-employment duties if the person does not engage in or undertake any substantial activity related to the person's normal employment or self-employment duties while participating in qualified reserve component duty unless in an authorized leave status or other authorized absence from military duties. If a person engages in or undertakes any substantial activity related to the person's normal employment or self-employment duties at any time while participating in a period of qualified reserve component duty, unless during a period of authorized leave or other authorized absence from military duties, the person shall be deemed to have engaged in or undertaken such activity for the entire period of qualified reserve component duty.

`(4) CERTAIN RULES TO APPLY- Rules similar to the rules of subsections (c), (d), and (e) of section 52 shall apply for purposes of this section.'.

(b) CONFORMING AMENDMENT- Section 38(b) (relating to general business credit) is amended--

(1) by striking `plus' at the end of paragraph (14),

(2) by striking the period at the end of paragraph (15) and inserting `, plus', and

(3) by adding at the end the following new paragraph:

`(16) the reserve component employment credit determined under section 45G(a).'.

(c) CLERICAL AMENDMENT- The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 45F the following new item:

` 45G. Reserve component employment credit.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.

END