To amend the Internal Revenue Code of 1986 to provide to employers a tax credit for compensation paid during the period employees are performing service as members of the Ready Reserve or the National Guard.

Summary: Patriotic Employers of Guard and Reservists Act of 2004 - Amends the Internal Revenue Code to allow employers a business tax credit for 50 percent of the lesser of: (1) actual compensation paid to each Ready Reserve-National Guard employee while on active duty; or (2) $30,000. Allows employers a refundable credit against payroll taxes for wages paid to employees who are first responders (i.e., law enforcement officials, firefighters, paramedics, and Ready Reserve-National Guard employees).

Allows employers a tax credit for 50 percent of the lesser of: (1) the wages paid to each employee hired to replace a Ready Reserve-National Guard employee or self-employed Reservist while on active duty; or (2) $12,000. Increases the amount of the credit for certain U.S. manufacturers.

Disqualifies an employer for the tax credit if the employer has failed to comply with employment or reemployment rights of military personnel.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Patriotic Employers of Guard and 
Reservists Act of 2004''.

SEC. 2. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT AND READY RESERVE-
              NATIONAL GUARD REPLACEMENT EMPLOYEE CREDIT.

    (a) Ready Reserve-National Guard Credit.--
            (1) 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:

``SEC. 45G. READY RESERVE-NATIONAL GUARD EMPLOYEE CREDIT.

    ``(a) General Rule.--For purposes of section 38, the Ready Reserve-
National Guard employee credit determined under this section for any 
taxable year with respect to each Ready Reserve-National Guard employee 
of an employer is an amount equal to 50 percent of the lesser of--
            ``(1) the actual compensation amount with respect to such 
        employee for such taxable year, or
            ``(2) $30,000.
    ``(b) Definition of Actual Compensation Amount.--For purposes of 
this section, the term `actual compensation amount' means the amount of 
compensation paid or incurred by an employer with respect to a Ready 
Reserve-National Guard employee on any day when the employee was absent 
from employment for the purpose of performing qualified active duty.
    ``(c) Limitations.--No credit shall be allowed with respect to any 
day that a Ready Reserve-National Guard employee who performs qualified 
active duty was not scheduled to work (for reason other than to 
participate in qualified active duty).
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified active duty.--The term `qualified active 
        duty' means--
                    ``(A) active duty, other than the training duty 
                specified in section 10147 of title 10, United States 
                Code (relating to training requirements for the Ready 
                Reserve), or section 502(a) of title 32, United States 
                Code (relating to required drills and field exercises 
                for the National Guard), in connection with which an 
                employee is entitled to reemployment rights and other 
                benefits or to a leave of absence from employment under 
                chapter 43 of title 38, United States Code, and
                    ``(B) hospitalization incident to such duty.
            ``(2) Compensation.--The term `compensation' means any 
        remuneration for employment, whether in cash or in kind, which 
        is paid or incurred by a taxpayer and which is deductible from 
        the taxpayer's gross income under section 162(a)(1).
            ``(3) Ready reserve-national guard employee.--The term 
        `Ready Reserve-National Guard employee' means an employee who 
        is a member of the Ready Reserve of a reserve component of an 
        Armed Force of the United States as described in sections 10142 
        and 10101 of title 10, United States Code.
            ``(4) Certain rules to apply.--Rules similar to the rules 
        of section 52 shall apply.
    ``(e) Portion of Credit Refundable.--
            ``(1) In general.--In the case of an employer of a 
        qualified first responder, the aggregate credits allowed to a 
        taxpayer under subpart C shall be increased by the lesser of--
                    ``(A) the credit which would be allowed under this 
                section without regard to this subsection and the 
                limitation under section 38(c), or
                    ``(B) the amount by which the aggregate amount of 
                credits allowed by this subpart (determined without 
                regard to this subsection) would increase if the 
                limitation imposed by section 38(c) for any taxable 
                year were increased by the amount of employer payroll 
taxes imposed on the taxpayer during the calendar year in which the 
taxable year begins.
        The amount of the credit allowed under this subsection shall 
        not be treated as a credit allowed under this subpart and shall 
        reduce the amount of the credit otherwise allowable under 
        subsection (a) without regard to section 38(c).
            ``(2) Employer payroll taxes.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `employer payroll 
                taxes' means the taxes imposed by--
                            ``(i) section 3111(b), and
                            ``(ii) sections 3211(a) and 3221(a) 
                        (determined at a rate equal to the rate under 
                        section 3111(b)).
                    ``(B) Special rule.--A rule similar to the rule of 
                section 24(d)(2)(C) shall apply for purposes of 
                subparagraph (A).
            ``(3) Qualified first responder.--For purposes of this 
        subsection, the term `qualified first responder' means any 
        person who is--
                    ``(A) employed as a law enforcement official, a 
                firefighter, or a paramedic, and
                    ``(B) a Ready Reserve-National Guard employee.''.
            (2) Credit to be part of general business credit.--
        Subsection (b) of section 38 of such Code (relating to general 
        business credit) is amended by striking ``plus'' at the end of 
        paragraph (14), by striking the period at the end of paragraph 
        (15) and inserting ``, plus'', and by adding at the end the 
        following:
            ``(16) the Ready Reserve-National Guard employee credit 
        determined under section 45G(a).''.
            (3) Denial of double benefit.--Section 280C(a) of such Code 
        (relating to rule for employment credits) is amended by 
        inserting ``45G(a),'' after ``45A(a),''.
            (4) Conforming amendment.--The table of sections for 
        subpart D of part IV of subchapter A of chapter 1 of such Code 
        is amended by inserting after the item relating to section 45F 
        the following:

                              ``Sec. 45G. Ready Reserve-National Guard 
                                        employee credit.''.
            (5) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after September 30, 
        2004, in taxable years ending after such date.
    (b) Ready Reserve-National Guard Replacement Employee Credit.--
            (1) In general.--Subpart B of part IV of subchapter A of 
        chapter 1 of such Code (relating to foreign tax credit, etc.) 
        is amended by adding after section 30A the following new 
        section:

``SEC. 30B. READY RESERVE-NATIONAL GUARD REPLACEMENT EMPLOYEE CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--In the case of an eligible taxpayer, 
        there shall be allowed as a credit against the tax imposed by 
        this chapter for the taxable year the sum of the employment 
        credits for each qualified replacement employee under this 
        section.
            ``(2) Employment credit.--The employment credit with 
        respect to a qualified replacement employee of the taxpayer for 
        any taxable year is equal to 50 percent of the lesser of--
                    ``(A) the individual's qualified compensation 
                attributable to service rendered as a qualified 
                replacement employee, or
                    ``(B) $12,000.
    ``(b) Qualified Compensation.--The term `qualified compensation' 
means--
            ``(1) 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),
            ``(2) 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
            ``(3) group health plan costs (if any) with respect to the 
        qualified replacement employee.
    ``(c) Qualified Replacement Employee.--For purposes of this 
section--
            ``(1) In general.--The term `qualified replacement 
        employee' means an individual who is hired to replace a Ready 
        Reserve-National Guard employee or a Ready Reserve-National 
        Guard self-employed taxpayer, but only with respect to the 
        period during which such Ready Reserve-National Guard employee 
        or Ready Reserve-National Guard self-employed taxpayer 
        participates in qualified active duty, including time spent in 
        travel status.
            ``(2) Ready reserve-national guard employee.--The term 
        `Ready Reserve-National Guard employee' has the meaning given 
        such term by section 45G(d)(3).
            ``(3) Ready reserve-national guard self-employed 
        taxpayer.--The term `Ready Reserve- National Guard 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 as 
                described in section 10142 and 10101 of title 10, 
                United States Code.
    ``(d) Coordination With Other Credits.--The amount of credit 
otherwise allowable under sections 51(a) and 1396(a) with respect to 
any employee shall be reduced by the credit allowed by this section 
with respect to such employee.
    ``(e) Limitations.--
            ``(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.
    ``(f) General Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Eligible taxpayer.--The term `eligible taxpayer' 
        means a small business employer or a Ready Reserve-National 
        Guard self-employed taxpayer.
            ``(2) Small business employer.--
                    ``(A) In general.--The term `small business 
                employer' means, with respect to any taxable year, any 
                employer who employed an average of 50 or fewer 
                employees on business days during such taxable year.
                    ``(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.
            ``(3) Qualified active duty.--The term `qualified active 
        duty' has the meaning given such term by section 45G(d)(1).
            ``(4) Special rules for certain manufacturers.--
                    ``(A) In general.--In the case of any qualified 
                manufacturer--
                            ``(i) subsection (a)(2)(B) shall be applied 
                        by substituting `$20,000' for `$12,000', and
                            ``(ii) paragraph (2)(A) of this subsection 
                        shall be applied by substituting `100' for 
                        `50'.
                    ``(B) Qualified manufacturer.--For purposes of this 
                paragraph, the term `qualified manufacturer' means any 
                person if--
                            ``(i) the primary business of such person 
                        is classified in sector 31, 32, or 33 of the 
                        North American Industrial Classification 
                        System, and
                            ``(ii) all of such person's facilities 
                        which are used for production in such business 
                        are located in the United States.
            ``(5) 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 (e)(1) for such taxable 
                year (in this paragraph referred to as the `unused 
                credit year'), such excess shall be a credit carryback 
                to each of the 3 taxable years 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).
            ``(6) Certain rules to apply.--Rules similar to the rules 
        of subsections (c), (d), and (e) of section 52 shall apply.''.
            (2) No deduction for compensation taken into account for 
        credit.--Section 280C(a) of such Code (relating to rule for 
        employment credits) is amended--
                    (A) by inserting ``or compensation'' after 
                ``salaries'', and
                    (B) by inserting ``30B,'' before ``45A(a),''.
            (3) Conforming amendment.--Section 55(c)(2) of such Code is 
        amended by inserting ``30B(e)(1),'' after ``30(b)(3),''.
            (4) Clerical amendment.--The table of sections for subpart 
        B of part IV of subchapter A of chapter 1 of such Code is 
        amended by adding after the item relating to section 30A the 
        following new item:

                              ``Sec. 30B. Ready Reserve-National Guard 
                                        replacement employee credit.''.
            (5) Effective date.--The amendments made by this subsection 
        shall apply to amounts paid or incurred after September 30, 
        2004, in taxable years ending after such date.