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.

Summary: Guardsmen and Reservist Employer Tax Act of 2003 - Amends the Internal Revenue Code to provide a reserve component employment credit equal to the sum of the employment credit with respect to all qualified employees of the taxpayer and the self-employment credit of a qualified self-employed taxpayer. Limits the credit to $25,000 for each qualified employee. Disallows the credit for failure to comply with reserve member employment or reemployment rights, or when a reserve member is called or ordered to active duty for training.

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.