I 

108TH CONGRESS 

1ST SESSION H. R. 2399

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. 

IN THE HOUSE OF REPRESENTATIVES 

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 

A BILL

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Guardsmen and Re5 servist Employer Tax Act of 2003’’. 
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1 SEC. 2. CREDIT FOR EMPLOYMENT OF RESERVE COMPO2 NENT PERSONNEL. 

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to business-related credits) is amended by 

6 adding at the end the following new section: 

7 ‘‘SEC. 45G. RESERVE COMPONENT EMPLOYMENT CREDIT. 

8 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

9 the reserve component employment credit determined 

10 under this section is an amount equal to the sum of—

11 ‘‘(1) the employment credit with respect to all 

12 qualified employees of the taxpayer, plus 

13 ‘‘(2) the self-employment credit of a qualified 

14 self-employed taxpayer. 

15 ‘‘(b) EMPLOYMENT CREDIT.—For purposes of this 

16 section—

17 ‘‘(1) IN GENERAL.—The employment credit 

18 with respect to a qualified employee of the taxpayer 

19 for any taxable year is equal to the excess, if any, 

20 of—

21 ‘‘(A) the qualified employee’s average daily 

22 qualified compensation for the taxable year, 

23 over 

24 ‘‘(B) the average daily military pay and al25 lowances received by the qualified employee 

26 during the taxable year, 
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1 while participating in qualified reserve component 

2 duty to the exclusion of the qualified employee’s nor3 mal employment duties for the number of days the 

4 qualified employee participates in qualified reserve 

5 component duty during the taxable year, including 

6 time spent in a travel status. The employment cred7 it, with respect to all qualified employees, is equal to 

8 the sum of the employment credits for each qualified 

9 employee under this subsection. 

10 ‘‘(2) AVERAGE DAILY QUALIFIED COMPENSA11 TION AND AVERAGE DAILY MILITARY PAY AND AL12 LOWANCES.—As used with respect to a qualified em13 ployee—

14 ‘‘(A) the term ‘average daily qualified com15 pensation’ means the qualified compensation of 

16 the qualified employee for the taxable year di17 vided by the difference between—

18 ‘‘(i) 365, and 

19 ‘‘(ii) the number of days the qualified 

20 employee participates in qualified reserve 

21 component duty during the taxable year, 

22 including time spent in a travel status, and 

23 ‘‘(B) the term ‘average daily military pay 

24 and allowances’ means—
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1 ‘‘(i) the amount paid to the qualified 

2 employee during the taxable year as mili3 tary pay and allowances on account of the 

4 qualified employee’s participation in quali5 fied reserve component duty, divided by 

6 ‘‘(ii) the total number of days the 

7 qualified employee participates in qualified 

8 reserve component duty, including time 

9 spent in travel status. 

10 ‘‘(3) QUALIFIED COMPENSATION.—When used 

11 with respect to the compensation paid or that would 

12 have been paid to a qualified employee for any pe13 riod during which the qualified employee participates 

14 in qualified reserve component duty, the term ‘quali15 fied compensation’ means—

16 ‘‘(A) compensation which is normally con17 tingent on the qualified employee’s presence for 

18 work and which would be deductible from the 

19 taxpayer’s gross income under section 162(a)(1) 

20 if the qualified employee were present and re21 ceiving such compensation, 

22 ‘‘(B) compensation which is not character23 ized by the taxpayer as vacation or holiday pay, 

24 or as sick leave or pay, or as any other form 

25 of pay for a nonspecific leave of absence, and 
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1 with respect to which the number of days the 

2 qualified employee participates in qualified re3 serve component duty does not result in any re4 duction in the amount of vacation time, sick 

5 leave, or other nonspecific leave previously cred6 ited to or earned by the qualified employee, and 

7 ‘‘(C) group health plan costs (if any) with 

8 respect to the qualified employee. 

9 ‘‘(4) QUALIFIED EMPLOYEE.—The term ‘quali10 fied employee’ means a person who—

11 ‘‘(A) has been an employee of the taxpayer 

12 for the 21-day period immediately preceding the 

13 period during which the employee participates 

14 in qualified reserve component duty, and 

15 ‘‘(B) is a member of the Ready Reserve of 

16 a reserve component of an Armed Force of the 

17 United States as defined in sections 10142 and 

18 10101 of title 10, United States Code. 

19 ‘‘(c) SELF-EMPLOYMENT CREDIT.—

20 ‘‘(1) IN GENERAL.—The self-employment credit 

21 of a qualified self-employed taxpayer for any taxable 

22 year is equal to the excess, if any, of—

23 ‘‘(A) the self-employed taxpayer’s average 

24 daily self-employment income for the taxable 

25 year over, and 
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1 ‘‘(B) the average daily military pay and al2 lowances received by the taxpayer during the 

3 taxable year, while participating in qualified re4 serve component duty to the exclusion of the 

5 taxpayer’s normal self-employment duties for 

6 the number of days the taxpayer participates in 

7 qualified reserve component duty during the 

8 taxable year, including time spent in a travel 

9 status. 

10 ‘‘(2) AVERAGE DAILY SELF-EMPLOYMENT IN11 COME AND AVERAGE DAILY MILITARY PAY AND AL12 LOWANCES.—As used with respect to a self-em13 ployed taxpayer—

14 ‘‘(A) the term ‘average daily self-employ15 ment income’ means the self-employment in16 come (as defined in section 1402) of the tax17 payer for the taxable year plus the amount paid 

18 for insurance which constitutes medical care for 

19 the taxpayer for such year (within the meaning 

20 of section 162(l)) divided by the difference be21 tween—

22 ‘‘(i) 365, and 

23 ‘‘(ii) the number of days the taxpayer 

24 participates in qualified reserve component 
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1 duty during the taxable year, including 

2 time spent in a travel status, and 

3 ‘‘(B) the term ‘average daily military pay 

4 and allowances’ means—

5 ‘‘(i) the amount paid to the taxpayer 

6 during the taxable year as military pay 

7 and allowances on account of the tax8 payer’s participation in qualified reserve 

9 component duty, divided by 

10 ‘‘(ii) the total number of days the tax11 payer participates in qualified reserve com12 ponent duty, including time spent in travel 

13 status. 

14 ‘‘(3) QUALIFIED SELF-EMPLOYED TAXPAYER.—

15 The term ‘qualified self-employed taxpayer’ means a 

16 taxpayer who—

17 ‘‘(A) has net earnings from self-employ18 ment (as defined in section 1402) for the tax19 able year, and 

20 ‘‘(B) is a member of the Ready Reserve of 

21 a reserve component of an Armed Force of the 

22 United States. 

23 ‘‘(d) CREDIT IN ADDITION TO DEDUCTION.—The 

24 employment credit provided in this section is in addition 

25 to any deduction otherwise allowable with respect to com-
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1 pensation actually paid to a qualified employee during any 

2 period the qualified employee participates in qualified re3 serve component duty to the exclusion of normal employ4 ment duties. 

5 ‘‘(e) LIMITATIONS.—

6 ‘‘(1) MAXIMUM CREDIT.—

7 ‘‘(A) IN GENERAL.—The credit allowed by 

8 subsection (a) for the taxable year shall not ex9 ceed $25,000 with respect to each qualified em10 ployee. 

11 ‘‘(B) CONTROLLED GROUPS.—For pur12 poses of applying the limitation in subpara13 graph (A)—

14 ‘‘(i) all members of a controlled group 

15 shall be treated as one taxpayer, and 

16 ‘‘(ii) such limitations shall be allo17 cated among the members of such group in 

18 such manner as the Secretary may pre19 scribe. 

20 For purposes of this subparagraph, all persons 

21 treated as a single employer under subsection 

22 (a) or (b) of section 52 or subsection (m) or (o) 

23 of section 414 shall be treated as members of 

24 a controlled group. 
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1 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

2 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

3 MEMBERS OF THE RESERVE COMPONENTS OF THE

4 ARMED FORCES OF THE UNITED STATES.—No credit 

5 shall be allowed under subsection (a) to a taxpayer 

6 for—

7 ‘‘(A) any taxable year in which the tax8 payer is under a final order, judgment, or other 

9 process issued or required by a district court of 

10 the United States under section 4323 of title 38 

11 of the United States Code with respect to a vio12 lation of chapter 43 of such title, and 

13 ‘‘(B) the 2 succeeding taxable years. 

14 ‘‘(3) DISALLOWANCE WITH RESPECT TO PER15 SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—

16 No credit shall be allowed under subsection (a) to a 

17 taxpayer with respect to any period for which the 

18 person on whose behalf the credit would otherwise be 

19 allowable is called or ordered to active duty for any 

20 of the following types of duty: 

21 ‘‘(A) active duty for training under any 

22 provision of title 10, United States Code, 

23 ‘‘(B) training at encampments, maneuvers, 

24 outdoor target practice, or other exercises under 

25 chapter 5 of title 32, United States Code, or 
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1 ‘‘(C) full-time National Guard duty, as de2 fined in section 101(d)(5) of title 10, United 

3 States Code. 

4 ‘‘(f) GENERAL DEFINITIONS AND SPECIAL RULES.—

5 ‘‘(1) MILITARY PAY AND ALLOWANCES.—The 

6 term ‘military pay’ means pay as that term is de7 fined in section 101(21) of title 37, United States 

8 Code, and the term ‘allowances’ means the allow9 ances payable to a member of the Armed Forces of 

10 the United States under chapter 7 of that title. 

11 ‘‘(2) QUALIFIED RESERVE COMPONENT

12 DUTY.—The term ‘qualified reserve component duty’ 

13 includes only active duty performed, as designated in 

14 the reservist’s military orders, in support of a con15 tingency operation as defined in section 101(a)(13) 

16 of title 10, United States Code. 

17 ‘‘(3) NORMAL EMPLOYMENT AND SELF-EM18 PLOYMENT DUTIES.—A person shall be deemed to 

19 be participating in qualified reserve component duty 

20 to the exclusion of normal employment or self-em21 ployment duties if the person does not engage in or 

22 undertake any substantial activity related to the per23 son’s normal employment or self-employment duties 

24 while participating in qualified reserve component 

25 duty unless in an authorized leave status or other 
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1 authorized absence from military duties. If a person 

2 engages in or undertakes any substantial activity re3 lated to the person’s normal employment or self-em4 ployment duties at any time while participating in a 

5 period of qualified reserve component duty, unless 

6 during a period of authorized leave or other author7 ized absence from military duties, the person shall 

8 be deemed to have engaged in or undertaken such 

9 activity for the entire period of qualified reserve 

10 component duty. 

11 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 

12 to the rules of subsections (c), (d), and (e) of section 

13 52 shall apply for purposes of this section.’’. 

14 (b) CONFORMING AMENDMENT.—Section 38(b) (re15 lating to general business credit) is amended—

16 (1) by striking ‘‘plus’’ at the end of paragraph 

17 (14), 

18 (2) by striking the period at the end of para19 graph (15) and inserting ‘‘, plus’’, and 

20 (3) by adding at the end the following new 

21 paragraph: 

22 ‘‘(16) the reserve component employment credit 

23 determined under section 45G(a).’’. 

24 (c) CLERICAL AMENDMENT.—The table of sections 

25 for subpart D of part IV of subchapter A of chapter 1 
12

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1 is amended by inserting after the item relating to section 

2 45F the following new item:

‘‘ 45G. Reserve component employment credit.’’.

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2002.

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2

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1 SEC. 2. CREDIT FOR EMPLOYMENT OF RESERVE COMPO2 NENT PERSONNEL. 

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to business-related credits) is amended by 

6 adding at the end the following new section: 

7 ‘‘SEC. 45G. RESERVE COMPONENT EMPLOYMENT CREDIT. 

8 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

9 the reserve component employment credit determined 

10 under this section is an amount equal to the sum of—

11 ‘‘(1) the employment credit with respect to all 

12 qualified employees of the taxpayer, plus 

13 ‘‘(2) the self-employment credit of a qualified 

14 self-employed taxpayer. 

15 ‘‘(b) EMPLOYMENT CREDIT.—For purposes of this 

16 section—

17 ‘‘(1) IN GENERAL.—The employment credit 

18 with respect to a qualified employee of the taxpayer 

19 for any taxable year is equal to the excess, if any, 

20 of—

21 ‘‘(A) the qualified employee’s average daily 

22 qualified compensation for the taxable year, 

23 over 

24 ‘‘(B) the average daily military pay and al25 lowances received by the qualified employee 

26 during the taxable year, 
3

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1 while participating in qualified reserve component 

2 duty to the exclusion of the qualified employee’s nor3 mal employment duties for the number of days the 

4 qualified employee participates in qualified reserve 

5 component duty during the taxable year, including 

6 time spent in a travel status. The employment cred7 it, with respect to all qualified employees, is equal to 

8 the sum of the employment credits for each qualified 

9 employee under this subsection. 

10 ‘‘(2) AVERAGE DAILY QUALIFIED COMPENSA11 TION AND AVERAGE DAILY MILITARY PAY AND AL12 LOWANCES.—As used with respect to a qualified em13 ployee—

14 ‘‘(A) the term ‘average daily qualified com15 pensation’ means the qualified compensation of 

16 the qualified employee for the taxable year di17 vided by the difference between—

18 ‘‘(i) 365, and 

19 ‘‘(ii) the number of days the qualified 

20 employee participates in qualified reserve 

21 component duty during the taxable year, 

22 including time spent in a travel status, and 

23 ‘‘(B) the term ‘average daily military pay 

24 and allowances’ means—
4

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1 ‘‘(i) the amount paid to the qualified 

2 employee during the taxable year as mili3 tary pay and allowances on account of the 

4 qualified employee’s participation in quali5 fied reserve component duty, divided by 

6 ‘‘(ii) the total number of days the 

7 qualified employee participates in qualified 

8 reserve component duty, including time 

9 spent in travel status. 

10 ‘‘(3) QUALIFIED COMPENSATION.—When used 

11 with respect to the compensation paid or that would 

12 have been paid to a qualified employee for any pe13 riod during which the qualified employee participates 

14 in qualified reserve component duty, the term ‘quali15 fied compensation’ means—

16 ‘‘(A) compensation which is normally con17 tingent on the qualified employee’s presence for 

18 work and which would be deductible from the 

19 taxpayer’s gross income under section 162(a)(1) 

20 if the qualified employee were present and re21 ceiving such compensation, 

22 ‘‘(B) compensation which is not character23 ized by the taxpayer as vacation or holiday pay, 

24 or as sick leave or pay, or as any other form 

25 of pay for a nonspecific leave of absence, and 
5

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1 with respect to which the number of days the 

2 qualified employee participates in qualified re3 serve component duty does not result in any re4 duction in the amount of vacation time, sick 

5 leave, or other nonspecific leave previously cred6 ited to or earned by the qualified employee, and 

7 ‘‘(C) group health plan costs (if any) with 

8 respect to the qualified employee. 

9 ‘‘(4) QUALIFIED EMPLOYEE.—The term ‘quali10 fied employee’ means a person who—

11 ‘‘(A) has been an employee of the taxpayer 

12 for the 21-day period immediately preceding the 

13 period during which the employee participates 

14 in qualified reserve component duty, and 

15 ‘‘(B) is a member of the Ready Reserve of 

16 a reserve component of an Armed Force of the 

17 United States as defined in sections 10142 and 

18 10101 of title 10, United States Code. 

19 ‘‘(c) SELF-EMPLOYMENT CREDIT.—

20 ‘‘(1) IN GENERAL.—The self-employment credit 

21 of a qualified self-employed taxpayer for any taxable 

22 year is equal to the excess, if any, of—

23 ‘‘(A) the self-employed taxpayer’s average 

24 daily self-employment income for the taxable 

25 year over, and 
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1 ‘‘(B) the average daily military pay and al2 lowances received by the taxpayer during the 

3 taxable year, while participating in qualified re4 serve component duty to the exclusion of the 

5 taxpayer’s normal self-employment duties for 

6 the number of days the taxpayer participates in 

7 qualified reserve component duty during the 

8 taxable year, including time spent in a travel 

9 status. 

10 ‘‘(2) AVERAGE DAILY SELF-EMPLOYMENT IN11 COME AND AVERAGE DAILY MILITARY PAY AND AL12 LOWANCES.—As used with respect to a self-em13 ployed taxpayer—

14 ‘‘(A) the term ‘average daily self-employ15 ment income’ means the self-employment in16 come (as defined in section 1402) of the tax17 payer for the taxable year plus the amount paid 

18 for insurance which constitutes medical care for 

19 the taxpayer for such year (within the meaning 

20 of section 162(l)) divided by the difference be21 tween—

22 ‘‘(i) 365, and 

23 ‘‘(ii) the number of days the taxpayer 

24 participates in qualified reserve component 
7

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1 duty during the taxable year, including 

2 time spent in a travel status, and 

3 ‘‘(B) the term ‘average daily military pay 

4 and allowances’ means—

5 ‘‘(i) the amount paid to the taxpayer 

6 during the taxable year as military pay 

7 and allowances on account of the tax8 payer’s participation in qualified reserve 

9 component duty, divided by 

10 ‘‘(ii) the total number of days the tax11 payer participates in qualified reserve com12 ponent duty, including time spent in travel 

13 status. 

14 ‘‘(3) QUALIFIED SELF-EMPLOYED TAXPAYER.—

15 The term ‘qualified self-employed taxpayer’ means a 

16 taxpayer who—

17 ‘‘(A) has net earnings from self-employ18 ment (as defined in section 1402) for the tax19 able year, and 

20 ‘‘(B) is a member of the Ready Reserve of 

21 a reserve component of an Armed Force of the 

22 United States. 

23 ‘‘(d) CREDIT IN ADDITION TO DEDUCTION.—The 

24 employment credit provided in this section is in addition 

25 to any deduction otherwise allowable with respect to com-
8

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1 pensation actually paid to a qualified employee during any 

2 period the qualified employee participates in qualified re3 serve component duty to the exclusion of normal employ4 ment duties. 

5 ‘‘(e) LIMITATIONS.—

6 ‘‘(1) MAXIMUM CREDIT.—

7 ‘‘(A) IN GENERAL.—The credit allowed by 

8 subsection (a) for the taxable year shall not ex9 ceed $25,000 with respect to each qualified em10 ployee. 

11 ‘‘(B) CONTROLLED GROUPS.—For pur12 poses of applying the limitation in subpara13 graph (A)—

14 ‘‘(i) all members of a controlled group 

15 shall be treated as one taxpayer, and 

16 ‘‘(ii) such limitations shall be allo17 cated among the members of such group in 

18 such manner as the Secretary may pre19 scribe. 

20 For purposes of this subparagraph, all persons 

21 treated as a single employer under subsection 

22 (a) or (b) of section 52 or subsection (m) or (o) 

23 of section 414 shall be treated as members of 

24 a controlled group. 
9

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1 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

2 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

3 MEMBERS OF THE RESERVE COMPONENTS OF THE

4 ARMED FORCES OF THE UNITED STATES.—No credit 

5 shall be allowed under subsection (a) to a taxpayer 

6 for—

7 ‘‘(A) any taxable year in which the tax8 payer is under a final order, judgment, or other 

9 process issued or required by a district court of 

10 the United States under section 4323 of title 38 

11 of the United States Code with respect to a vio12 lation of chapter 43 of such title, and 

13 ‘‘(B) the 2 succeeding taxable years. 

14 ‘‘(3) DISALLOWANCE WITH RESPECT TO PER15 SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—

16 No credit shall be allowed under subsection (a) to a 

17 taxpayer with respect to any period for which the 

18 person on whose behalf the credit would otherwise be 

19 allowable is called or ordered to active duty for any 

20 of the following types of duty: 

21 ‘‘(A) active duty for training under any 

22 provision of title 10, United States Code, 

23 ‘‘(B) training at encampments, maneuvers, 

24 outdoor target practice, or other exercises under 

25 chapter 5 of title 32, United States Code, or 
10

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1 ‘‘(C) full-time National Guard duty, as de2 fined in section 101(d)(5) of title 10, United 

3 States Code. 

4 ‘‘(f) GENERAL DEFINITIONS AND SPECIAL RULES.—

5 ‘‘(1) MILITARY PAY AND ALLOWANCES.—The 

6 term ‘military pay’ means pay as that term is de7 fined in section 101(21) of title 37, United States 

8 Code, and the term ‘allowances’ means the allow9 ances payable to a member of the Armed Forces of 

10 the United States under chapter 7 of that title. 

11 ‘‘(2) QUALIFIED RESERVE COMPONENT

12 DUTY.—The term ‘qualified reserve component duty’ 

13 includes only active duty performed, as designated in 

14 the reservist’s military orders, in support of a con15 tingency operation as defined in section 101(a)(13) 

16 of title 10, United States Code. 

17 ‘‘(3) NORMAL EMPLOYMENT AND SELF-EM18 PLOYMENT DUTIES.—A person shall be deemed to 

19 be participating in qualified reserve component duty 

20 to the exclusion of normal employment or self-em21 ployment duties if the person does not engage in or 

22 undertake any substantial activity related to the per23 son’s normal employment or self-employment duties 

24 while participating in qualified reserve component 

25 duty unless in an authorized leave status or other 
11

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1 authorized absence from military duties. If a person 

2 engages in or undertakes any substantial activity re3 lated to the person’s normal employment or self-em4 ployment duties at any time while participating in a 

5 period of qualified reserve component duty, unless 

6 during a period of authorized leave or other author7 ized absence from military duties, the person shall 

8 be deemed to have engaged in or undertaken such 

9 activity for the entire period of qualified reserve 

10 component duty. 

11 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 

12 to the rules of subsections (c), (d), and (e) of section 

13 52 shall apply for purposes of this section.’’. 

14 (b) CONFORMING AMENDMENT.—Section 38(b) (re15 lating to general business credit) is amended—

16 (1) by striking ‘‘plus’’ at the end of paragraph 

17 (14), 

18 (2) by striking the period at the end of para19 graph (15) and inserting ‘‘, plus’’, and 

20 (3) by adding at the end the following new 

21 paragraph: 

22 ‘‘(16) the reserve component employment credit 

23 determined under section 45G(a).’’. 

24 (c) CLERICAL AMENDMENT.—The table of sections 

25 for subpart D of part IV of subchapter A of chapter 1 
12

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1 is amended by inserting after the item relating to section 

2 45F the following new item:

‘‘45G. Reserve component employment credit.’’.

3 (d) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2002.’’.

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