110th CONGRESS
1st Session
S. 455
To amend the Internal Revenue Code of 1986 to provide tax relief
to active duty military personnel and employers who assist them, and for
other purposes.
IN THE SENATE OF THE UNITED STATES
January 31, 2007
Mr. KERRY introduced the following bill; which was read twice and referred
to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to provide tax relief
to active duty military personnel and employers who assist them, and for
other purposes.
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 `Active Duty Military Tax Relief Act of 2007'.
SEC. 2. CREDIT FOR INCOME DIFFERENTIAL FOR EMPLOYMENT OF ACTIVATED MILITARY
RESERVIST AND REPLACEMENT PERSONNEL.
(a) In General- Subpart B of part IV of subchapter A of chapter 1 of the
Internal Revenue Code of 1986 (relating to foreign tax credit, etc.) is
amended by adding at the end the following new section:
`SEC. 30C. EMPLOYER WAGE CREDIT FOR ACTIVATED MILITARY RESERVISTS.
`(a) General Rule- There shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to the sum of--
`(1) in the case of an eligible small business employer, the employment
credit with respect to all qualified employees and qualified replacement
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) QUALIFIED EMPLOYEES-
`(A) IN GENERAL- The employment credit with respect to a qualified employee
of the taxpayer for any taxable year is equal to 40 percent of so much
of the excess (if any) paid by the taxpayer to such qualified employee
of--
`(i) the qualified employee's average daily qualified compensation
for the taxable year, over
`(ii) 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 aggregate number of days the qualified employee participates
in qualified reserve component duty during the taxable year (including
time spent in a travel status) as does not exceed $25,000. 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.
`(B) AVERAGE DAILY QUALIFIED COMPENSATION AND AVERAGE DAILY MILITARY
PAY AND ALLOWANCES- As used with respect to a qualified employee--
`(i) the term `average daily qualified compensation' means the qualified
compensation of the qualified employee for the taxable year divided
by 365, and
`(ii) 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.
`(C) QUALIFIED COMPENSATION- When used with respect to the compensation
paid to a qualified employee for any period during which the qualified
employee participates in qualified reserve component duty, the term
`qualified compensation' means--
`(i) 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,
`(ii) 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
`(iii) group health plan costs (if any) with respect to the qualified
employee.
`(D) QUALIFIED EMPLOYEE- The term `qualified employee' means a person
who--
`(i) has been an employee of the taxpayer for the 91-day period immediately
preceding the period during which the employee participates in qualified
reserve component duty, and
`(ii) 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.
`(2) QUALIFIED REPLACEMENT EMPLOYEES-
`(A) IN GENERAL- The employment credit with respect to a qualified replacement
employee of the taxpayer for any taxable year is equal to 40 percent
of so much of the individual's qualified compensation attributable to
service rendered as a qualified replacement employee as does not exceed
$15,000. The employment credit, with respect to all qualified replacement
employees, is equal to the sum of the employment credits for each qualified
replacement employee under this subsection.
`(B) QUALIFIED COMPENSATION- When used with respect to the compensation
paid to a qualified replacement employee, the term `qualified compensation'
means--
`(i) compensation which is normally contingent on the qualified replacement
employee's presence for work and which is deductible from the taxpayer's
gross income under section 162(a)(1),
`(ii) 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
`(iii) group health plan costs (if any) with respect to the qualified
replacement employee.
`(C) QUALIFIED REPLACEMENT EMPLOYEE- The term `qualified replacement
employee' means an individual who is hired to replace a qualified employee
or a qualified self-employed taxpayer, but only with respect to the
period during which such employee or taxpayer participates in qualified
reserve component duty, including time spent in travel status, and,
in the case of a qualified employee, is receiving qualified compensation
(as defined in paragraph (1)(C)) for which an employment credit is allowed
as determined under paragraph (1).
`(c) Self-Employment Credit- For purposes of this section--
`(1) IN GENERAL- The self-employment credit of a qualified self-employed
taxpayer for any taxable year is equal to 40 percent of so much of the
excess (if any) of--
`(A) the qualified self-employed taxpayer's average daily qualified
compensation for the taxable year, over
`(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 aggregate number of days the taxpayer participates in qualified
reserve component duty during the taxable year (including time spent in
a travel status) as does not exceed $25,000.
`(2) AVERAGE DAILY QUALIFIED COMPENSATION AND AVERAGE DAILY MILITARY PAY
AND ALLOWANCES- As used with respect to a qualified self-employed taxpayer--
`(A) the term `average daily qualified compensation' means the qualified
compensation of the qualified self-employed taxpayer for the taxable
year divided by 365 days, 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 COMPENSATION- When used with respect to the compensation
paid to a qualified self-employed taxpayer for any period during which
the qualified self-employed taxpayer participates in qualified reserve
component duty, the term `qualified compensation' means--
`(A) the self-employment income (as defined in section 1402(b) of the
taxpayer which is normally contingent on the taxpayer's presence for
work,
`(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
`(C) the amount paid for insurance which constitutes medical care for
the taxpayer for such year (within the meaning of section 162(l)).
`(4) 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(a))
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) Coordination With Other Credits- The amount of credit otherwise allowable
under this chapter with respect to compensation paid to any employee shall
be reduced by the credit allowed by this section with respect to such employee.
`(1) APPLICATION WITH OTHER CREDITS- The credit allowed under subsection
(a) for any taxable year shall not exceed the excess (if any) of--
`(A) the regular tax for the taxable year reduced by the sum of the
credits allowable under subpart A and sections 27, 29, and 30, over
`(B) the tentative minimum tax for the taxable year.
`(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, beginning after the date of the enactment of
this section, 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 by taking into account any person who 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.
`(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- For purposes of this section--
`(1) ELIGIBLE SMALL BUSINESS EMPLOYER-
`(A) IN GENERAL- The term `eligible small business employer' means,
with respect to any taxable year, any employer which--
`(i) employed an average of 100 or fewer employees on business days
during such taxable year, and
`(ii) under a written plan of the employer, provides the excess amount
described in subsection (b)(1)(A) to every qualified employee of the
employer.
`(B) CONTROLLED GROUPS- For purposes of subparagraph (A), all persons
treated as a single employer under subsection (b), (c), (m), or (o)
of section 414 shall be treated as a single employer.
`(2) 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.
`(3) 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.
`(4) CARRYBACK AND CARRYFORWARD ALLOWED-
`(A) IN GENERAL- If the credit allowable under subsection (a) for a
taxable year exceeds the amount of the limitation under subsection (f)(1)
for such taxable year (in this paragraph referred to as the `unused
credit year'), such excess shall be a credit carryback to the taxable
year preceding the unused credit year and a credit carryforward to each
of the 20 taxable years following the unused credit year.
`(B) RULES- Rules similar to the rules of section 39 shall apply with
respect to the credit carryback and credit carryforward under subparagraph
(A).
`(5) CERTAIN RULES TO APPLY- Rules similar to the rules of subsections
(c), (d), and (e) of section 52 shall apply.'.
(b) No Deduction for Compensation Taken Into Account for Credit- Section
280C(a) of the Internal Revenue Code of 1986 (relating to rule for employment
credits) is amended--
(1) by inserting `or compensation' after `salaries', and
(2) by inserting `30C,' before `45A(a),'.
(c) Conforming Amendment- Section 55(c)(2) of the Internal Revenue Code
of 1986 is amended by inserting `30C(e)(1),' after `30(b)(3),'.
(d) Clerical Amendment- The table of sections for subpart B of part IV of
subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended
by adding at the end of 30A the following new item:
`Sec. 30C. Employer wage credit for activated military reservists.'.
(e) Effective Date- The amendments made by this section shall apply to amounts
paid in taxable years beginning after December 31, 2006.
SEC. 3. DIFFERENTIAL WAGE PAYMENTS.
(a) Income Tax Withholding on Differential Wage Payments-
(1) IN GENERAL- Section 3401 of the Internal Revenue Code of 1986 (relating
to definitions) is amended by adding at the end the following new subsection:
`(h) Differential Wage Payments to Active Duty Members of the Uniformed
Services-
`(1) IN GENERAL- For purposes of subsection (a), any differential wage
payment shall be treated as a payment of wages by the employer to the
employee.
`(2) DIFFERENTIAL WAGE PAYMENT- For purposes of paragraph (1), the term
`differential wage payment' means any payment which--
`(A) is made by an employer to an individual with respect to any period
during which the individual is performing service in the uniformed services
while on active duty for a period of more than 30 days, and
`(B) represents all or a portion of the wages the individual would have
received from the employer if the individual were performing service
for the employer.'.
(2) EFFECTIVE DATE- The amendment made by this subsection shall apply
to remuneration paid after December 31, 2007.
(b) Treatment of Differential Wage Payments for Retirement Plan Purposes-
(A) IN GENERAL- Section 414(u) of the Internal Revenue Code of 1986
(relating to special rules relating to veterans' reemployment rights
under USERRA) is amended by adding at the end the following new paragraph:
`(11) TREATMENT OF DIFFERENTIAL WAGE PAYMENTS-
`(A) IN GENERAL- Except as provided in this paragraph, for purposes
of applying this title to a retirement plan to which this subsection
applies--
`(i) an individual receiving a differential wage payment shall be
treated as an employee of the employer making the payment,
`(ii) the differential wage payment shall be treated as compensation,
and
`(iii) the plan shall not be treated as failing to meet the requirements
of any provision described in paragraph (1)(C) by reason of any contribution
or benefit which is based on the differential wage payment.
`(B) SPECIAL RULE FOR DISTRIBUTIONS-
`(i) IN GENERAL- Notwithstanding subparagraph (A)(i), for purposes
of section 401(k)(2)(B)(i)(I), 403(b)(7)(A)(ii), 403(b)(11)(A), or
457(d)(1)(A)(ii), an individual shall be treated as having been severed
from employment during any period the individual is performing service
in the uniformed services described in section 3401(h)(2)(A).
`(ii) LIMITATION- If an individual elects to receive a distribution
by reason of clause (i), the plan shall provide that the individual
may not make an elective deferral or employee contribution during
the 6-month period beginning on the date of the distribution.
`(C) NONDISCRIMINATION REQUIREMENT- Subparagraph (A)(iii) shall apply
only if all employees of an employer (as determined under subsections
(b), (c), (m), and (o)) performing service in the uniformed services
described in section 3401(h)(2)(A) are entitled to receive differential
wage payments on reasonably equivalent terms and, if eligible to participate
in a retirement plan maintained by the employer, to make contributions
based on the payments on reasonably equivalent terms. For purposes of
applying this subparagraph, the provisions of paragraphs (3), (4), and
(5), of section 410(b) shall apply.
`(D) DIFFERENTIAL WAGE PAYMENT- For purposes of this paragraph, the
term `differential wage payment' has the meaning given such term by
section 3401(h)(2).'.
(B) CONFORMING AMENDMENT- The heading for section 414(u) of such Code
is amended by inserting `and to Differential Wage Payments to Members
on Active Duty' after `USERRA'.
(2) DIFFERENTIAL WAGE PAYMENTS TREATED AS COMPENSATION FOR INDIVIDUAL
RETIREMENT PLANS- Section 219(f)(1) of the Internal Revenue Code of 1986
(defining compensation) is amended by adding at the end the following
new sentence: `The term `compensation' includes any differential wage
payment (as defined in section 3401(h)(2)).'.
(3) EFFECTIVE DATE- The amendments made by this subsection shall apply
to years beginning after December 31, 2007.
(c) Provisions Relating to Plan Amendments-
(1) IN GENERAL- If this subsection applies to any plan or annuity contract
amendment--
(A) such plan or contract shall be treated as being operated in accordance
with the terms of the plan or contract during the period described in
paragraph (2)(B)(i), and
(B) except as provided by the Secretary of the Treasury, such plan shall
not fail to meet the requirements of the Internal Revenue Code of 1986
or the Employee Retirement Income Security Act of 1974 by reason of
such amendment.
(2) AMENDMENTS TO WHICH SECTION APPLIES-
(A) IN GENERAL- This subsection shall apply to any amendment to any
plan or annuity contract which is made--
(i) pursuant to any amendment made by this section, and
(ii) on or before the last day of the first plan year beginning on
or after January 1, 2009.
(B) CONDITIONS- This subsection shall not apply to any plan or annuity
contract amendment unless--
(i) during the period beginning on the date the amendment described
in subparagraph (A)(i) takes effect and ending on the date described
in subparagraph (A)(ii) (or, if earlier, the date the plan or contract
amendment is adopted), the plan or contract is operated as if such
plan or contract amendment were in effect, and
(ii) such plan or contract amendment applies retroactively for such
period.
SEC. 4. CONTRIBUTIONS OF MILITARY DEATH GRATUITIES TO CERTAIN TAX-FAVORED
ACCOUNTS.
(1) PROVISION IN EFFECT BEFORE PENSION PROTECTION ACT- Subsection (e)
of section 408A of the Internal Revenue Code of 1986 (relating to qualified
rollover contribution), as in effect before the amendments made by section
824 of the Pension Protection Act of 2006, is amended to read as follows:
`(e) Qualified Rollover Contribution- For purposes of this section--
`(1) IN GENERAL- The term `qualified rollover contribution' means a rollover
contribution to a Roth IRA from another such account, or from an individual
retirement plan, but only if such rollover contribution meets the requirements
of section 408(d)(3). Such term includes a rollover contribution described
in section 402A(c)(3)(A). For purposes of section 408(d)(3)(B), there
shall be disregarded any qualified rollover contribution from an individual
retirement plan (other than a Roth IRA) to a Roth IRA.
`(2) MILITARY DEATH GRATUITY-
`(A) IN GENERAL- The term `qualified rollover contribution' includes
a contribution to a Roth IRA maintained for the benefit of an individual
to the extent that such contribution does not exceed the amount received
by such individual under section 1477 of title 10, United States Code,
or under section 1967 of title 38 of such Code, if such contribution
is made not later than 1 year after the day on which such individual
receives such amount.
`(B) ANNUAL LIMIT ON NUMBER OF ROLLOVERS NOT TO APPLY- Section 408(d)(3)(B)
shall not apply with respect to amounts treated as a rollover by the
subparagraph (A).
`(C) APPLICATION OF SECTION 72- For purposes of applying section 72
in the case of a distribution which is not a qualified distribution,
the amount treated as a rollover by reason of subparagraph (A) shall
be treated as investment in the contract.'.
(2) PROVISION IN EFFECT AFTER PENSION PROTECTION ACT- Subsection (e) of
section 408A, as in effect after the amendments made by section 824 of
the Pension Protection Act of 2006, is amended to read as follows:
`(e) Qualified Rollover Contribution- For purposes of this section--
`(1) IN GENERAL- The term `qualified rollover contribution' means a rollover
contribution--
`(A) to a Roth IRA from another such account,
`(B) from an eligible retirement plan, but only if--
`(i) in the case of an individual retirement plan, such rollover contribution
meets the requirements of section 408(d)(3), and
`(ii) in the case of any eligible retirement plan (as defined in section
402(c)(8)(B) other than clauses (i) and (ii) thereof), such rollover
contribution meets the requirements of section 402(c), 403(b)(8),
or 457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there shall be disregarded any qualified
rollover contribution from an individual retirement plan (other than a
Roth IRA) to a Roth IRA.
`(2) MILITARY DEATH GRATUITY-
`(A) IN GENERAL- The term `qualified rollover contribution' includes
a contribution to a Roth IRA maintained for the benefit of an individual
to the extent that such contribution does not exceed the amount received
by such individual under section 1477 of title 10, United States Code,
or under section 1967 of title 38 of such Code, if such contribution
is made not later than 1 year after the day on which such individual
receives such amount.
`(B) ANNUAL LIMIT ON NUMBER OF ROLLOVERS NOT TO APPLY- Section 408(d)(3)(B)
shall not apply with respect to amounts treated as a rollover by the
subparagraph (A).
`(C) APPLICATION OF SECTION 72- For purposes of applying section 72
in the case of a distribution which is not a qualified distribution,
the amount treated as a rollover by reason of subparagraph (A) shall
be treated as investment in the contract.'.
(b) Health Savings Accounts and Archer MSAs- Sections 220(f)(5) and 223(f)(5)
of the Internal Revenue Code of 1986 are each amended by adding at the end
the following flush sentence:
`For purposes of subparagraphs (A) and (B), rules similar to the rules
of section 408A(e)(2) (relating to rollover treatment for contributions
of military death gratuity) shall apply.'.
(c) Education Savings Accounts- Section 530(d)(5) of the Internal Revenue
Code of 1986 is amended by adding at the end the following new sentence:
`For purposes of this paragraph, rules similar to the rules of section 408A(e)(2)
(relating to rollover treatment for contributions of military death gratuity)
shall apply.'.
(1) IN GENERAL- Except as provided by paragraphs (2) and (3), the amendments
made by this section shall apply with respect to deaths from injuries
occurring on or after the date of the enactment of this Act.
(2) APPLICATION OF AMENDMENTS TO DEATHS FROM INJURIES OCCURRING ON OR
AFTER OCTOBER 7, 2001, AND BEFORE ENACTMENT- The amendments made by this
section shall apply to any contribution made pursuant to section 408A(e)(2),
220(f)(5), 223(f)(5), or 530(d)(5) of the Internal Revenue Code of 1986,
as amended by this Act, with respect to amounts received under section
1477 of title 10, United States Code, or under section 1967 of title 38
of such Code, for deaths from injuries occurring on or after October 7,
2001, and before the date of the enactment of this Act if such contribution
is made not later than 1 year after the date of the enactment of this
Act.
(3) PENSION PROTECTION ACT CHANGES- Section 408A(e)(1) of the Internal
Revenue Code of 1986 (as in effect after the amendments made by subsection
(a)(2)) shall apply to taxable years beginning after December 31, 2007.
SEC. 5. TEMPORARY INCREASE IN STANDARD DEDUCTION FOR ACTIVE DUTY MILITARY
PERSONNEL.
(a) In General- Paragraph (3) of section 63(c) of the Internal Revenue Code
of 1986 (defining additional standard deduction for the aged and blind)
is amended to read as follows:
`(3) ADDITIONAL STANDARD DEDUCTION- For the purposes of paragraph (1),
the additional standard deduction is the sum of--
`(A) the sum of each additional amount to which the taxpayer is entitled
under subsection (f), plus
`(B) in the case of a taxable year beginning in 2007 or 2008, an additional
amount of $1,000 for an individual for such taxable year if the individual
who at any time during such taxable year is performing service in the
uniformed services while on active duty for a period of more than 30
days.'.
(b) Conforming Amendments-
(1) Section 3402(m)(3) of the the Internal Revenue Code of 1986 is amended
by striking `for the aged and blind'.
(2) Section 6012(a)(1)(B) of such Code is amended by adding at the end
the following new sentence: `The preceding sentence shall be applied without
regard to section 63(c)(3)(B) and each of the amounts specified in subparagraph
(A) shall be increased by the portion of any additional standard deduction
to which the individual is entitled by reason of section 63(c)(3)(B).'.
(c) Effective Date- The amendments made by this section shall apply to taxable
years beginning after December 31, 2006.
SEC. 6. PERMANENT EXTENSION OF ELECTION TO INCLUDE COMBAT PAY AS EARNED
INCOME FOR PURPOSES OF EARNED INCOME CREDIT.
(a) In General- Section 32(c)(2)(B)(vi) of the Internal Revenue Code of
1986, as amended by section 106 of division A of the Tax Relief and Health
Care Act of 2006, is amended to read as follows:
`(vi) a taxpayer may elect to treat amounts excluded from gross income
by means of section 112 as earned income.'.
(b) Effective Date- The amendments made by this section shall apply to taxable
years beginning after December 31, 2007.
END
