To amend the Internal Revenue Code of 1986 to allow employers a credit against income tax equal to 50 percent of the compensation paid to employees while they are performing active duty service as members of the Ready Reserve or the National Guard and of the compensation paid to temporary replacement employees.

Summary: Reservist's Employer Support Paycheck Enhancement Act of 2006 - Amends the Internal Revenue Code to allow employers a tax credit for 50% of the wages paid to their employees on active military duty for more than 90 days as Ready Reserve or National Guard and for 50% of the wages paid to temporary replacement employees.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Reservist's Employer Support 
Paycheck Enhancement Act of 2006''.

SEC. 2. EMPLOYER CREDIT FOR COMPENSATION PAID TO EMPLOYEES WHILE 
              SERVING ON ACTIVE DUTY AS MEMBERS OF READY RESERVE OR THE 
              NATIONAL GUARD.

    (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. 45N. EMPLOYER CREDIT FOR COMPENSATION PAID TO EMPLOYEES WHILE 
              SERVING ON ACTIVE DUTY AS MEMBERS OF READY RESERVE OR THE 
              NATIONAL GUARD AND FOR COMPENSATION PAID TO TEMPORARY 
              REPLACEMENT EMPLOYEES.

    ``(a) General Rule.--For purposes of section 38, in the case of an 
employer, the employer Ready Reserve-National Guard active duty credit 
determined under this section for the taxable year is an amount equal 
to--
            ``(1) 50 percent of the compensation paid or incurred to 
        each Ready Reserve-National Guard employee of the taxpayer 
        while the employee is absent from employment while performing 
        qualified active duty, and
            ``(2) 50 percent of the compensation paid or incurred to 
        each qualified replacement employee of the taxpayer.
    ``(b) Limitation Applicable to Ready Reserve-National Guard 
Employees.--
            ``(1) In general.--The amount of compensation taken into 
        account under subsection (a) for any period of qualified active 
        duty with respect to a Ready Reserve-National Guard employee 
        shall not exceed the active duty wage differential of such 
        employee for such period.
            ``(2) Active duty wage differential.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the active duty wage differential of a Ready Reserve-
                National Guard employee for any period of qualified 
                active duty is the amount equal to the product of--
                            ``(i) the daily wage differential of such 
                        employee for such period, multiplied by
                            ``(ii) the number of days that such 
                        employee is on qualified active duty during 
                        such period.
                    ``(B) Daily wage differential.--For purposes of 
                subparagraph (A), the daily wage differential of a 
                Ready Reserve-National Guard employee for any period is 
                an amount equal to the excess of--
                            ``(i) such employee's average daily 
                        employer-provided compensation for such period, 
                        over
                            ``(ii) such employee's average daily 
                        military pay for such period.
                    ``(C) Average daily employer-provided 
                compensation.--
                            ``(i) In general.--For purposes of 
                        subparagraph (B), an employee's average daily 
                        employer-provided compensation for any period 
                        is the average daily compensation paid by the 
                        employer to the employee for the 1-year period 
                        ending on the day before the date that the 
                        employee begins qualified active duty, adjusted 
                        for cost-of-living and other increases 
                        generally applicable to employees of the 
                        employer for such period.
                            ``(ii) Employer-provided compensation.--The 
                        term `compensation' means any remuneration for 
                        employment, whether in cash or in kind, which 
                        is allowable as a deduction under section 
                        162(a)(1).
                    ``(D) Average daily military pay.--
                            ``(i) In general.--For purposes of 
                        subparagraph (B), a Ready Reserve-National 
                        Guard employee's average daily military pay is 
                        the average daily military pay and allowances 
                        received by the employee on account of the 
                        employees's performance of qualified active 
                        duty during the period.
                            ``(ii) Military pay and allowances.--For 
                        purposes of clause (i)--
                                    ``(I) Military pay.--The term 
                                `military pay' means pay (as defined in 
                                section 101(21) of title 37, United 
                                States Code).
                                    ``(II) Allowances.--The term 
                                `allowances' means the allowances 
                                payable to a member of the Armed Forces 
                                of the United States under chapter 7 of 
                                such title.
    ``(c) Limitation Applicable to Qualified Replacement Employees.--
            ``(1) In general.--The amount of compensation taken into 
        account under subsection (a) with respect to any qualified 
        replacement employee for any period shall not exceed the amount 
        equal to the product of--
                    ``(A) the average daily employer-provided 
                compensation for such period of the Ready Reserve-
                National Guard employee being replaced by such 
                replacement employee for such period, and
                    ``(B) the number of days that the Ready Reserve-
                National Guard employee is on qualified active duty 
                during such period.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Ready reserve-national guard employee.--
                    ``(A) In general.--The term `Ready Reserve-National 
                Guard employee' means any employee--
                            ``(i) who is a member of the Ready Reserve 
                        or of the National Guard, and
                            ``(ii) who was an employee of the taxpayer 
                        during the 1-year period ending on the day 
                        before the date that the employee begins 
                        qualified active duty.
                    ``(B) National guard.--The term `National Guard' 
                has the meaning given such term by section 101(c)(1) of 
                title 10, United States Code.
                    ``(C) Ready reserve.--The term `Ready Reserve' has 
                the meaning given such term by section 10142 of title 
                10, United States Code.
            ``(2) Qualified active duty.--The term `qualified active 
        duty' means--
                    ``(A) active duty under an order or call for a 
                period in excess of 90 days or for an indefinite 
                period, other than the training duty specified in--
                            ``(i) section 10147 of title 10, United 
                        States Code (relating to training requirements 
                        for the Ready Reserve), or
                            ``(ii) 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 active duty.
            ``(3) Qualified replacement employee.--The term `qualified 
        replacement employee' means any employee who is hired by the 
        taxpayer to replace a Ready Reserve-National Guard employee 
        during a period of qualified active duty.''.
    (b) Denial of Double Benefit.--Subsection (a) of section 280C of 
such Code (relating to certain expenses for which credits are 
allowable) is amended by inserting ``45N(a),'' after ``45A(a),''
    (c) 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 ``and'' at the end of paragraph (29), by striking 
the period at the end of paragraph (30) and inserting ``, and'', and by 
inserting after paragraph (30) the following new paragraph:
            ``(31) in the case of an employer, the employer Ready 
        Reserve-National Guard employee credit determined under section 
        45N(a).''.
    (d) 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 45M the following new 
item:

``Sec. 45N. Employer credit for compensation paid to employees while 
                            serving on active duty as members of Ready 
                            Reserve or the National Guard and for 
                            compensation paid to temporary replacement 
                            employees.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to periods of qualified active duty (as defined in section 45N(d) 
of the Internal Revenue Code of 1986, as added by this section) in 
taxable years beginning after December 31, 2005.
    (f) Information on Military Pay and Allowances.--The Secretary 
concerned (as defined in section 101 of title 10, United States Code) 
shall provide to employers and the Secretary of the Treasury such 
information as is necessary to determine the proper amount of credit 
allowable to employers under such section 45N.