II 

109TH CONGRESS 

1ST SESSION S. 240 

To amend the Internal Revenue Code of 1986 to allow small business employers a credit against income tax with respect to employees who participate 

in the military reserve components and are called to active duty and 

with respect to replacement employees and to allow a comparable credit 

for activated military reservists who are self-employed individuals, and 

for other purposes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 1, 2005 

Mr. KERRY (for himself, Mr. LEAHY, Mrs. MURRAY, Mr. ROCKEFELLER, Mr. 

DURBIN, Mr. PRYOR, and Ms. STABENOW) 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 allow small 

business employers a credit against income tax with respect to employees who participate in the military reserve 

components and are called to active duty and with respect to replacement employees and to allow a comparable credit for activated military reservists who are 

self-employed individuals, and for other purposes.

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

2 This Act may be cited as the ‘‘Small Business Mili3 tary Reservist Tax Credit Act’’. 

4 SEC. 2. CREDIT FOR INCOME DIFFERENTIAL FOR EMPLOY5 MENT OF ACTIVATED MILITARY RESERVIST 

6 AND REPLACEMENT PERSONNEL. 

7 (a) IN GENERAL.—Subpart B of part IV of sub8 chapter A of chapter 1 of the Internal Revenue Code of 

9 1986 (relating to foreign tax credit, etc.) is amended by 

10 adding at the end the following new section: 

11 ‘‘SEC. 30B. EMPLOYER WAGE CREDIT FOR ACTIVATED MILI12 TARY RESERVISTS. 

13 ‘‘(a) GENERAL RULE.—There shall be allowed as a 

14 credit against the tax imposed by this chapter for the tax15 able year an amount equal to the sum of— 

16 ‘‘(1) in the case of a small business employer, 

17 the employment credit with respect to all qualified 

18 employees and qualified replacement employees of 

19 the taxpayer, plus 

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

21 self-employed taxpayer. 

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

23 section— 

24 ‘‘(1) QUALIFIED EMPLOYEES.— 

25 ‘‘(A) IN GENERAL.—The employment cred26 it with respect to a qualified employee of the 
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1 taxpayer for any taxable year is equal to 50 

2 percent of the lesser of— 

3 ‘‘(i) the excess, if any, of— 

4 ‘‘(I) the qualified employee’s av5 erage daily qualified compensation for 

6 the taxable year, over 

7 ‘‘(II) the average daily military 

8 pay and allowances received by the 

9 qualified employee during the taxable 

10 year, while participating in qualified 

11 reserve component duty to the exclu12 sion of the qualified employee’s nor13 mal employment duties for the num14 ber of days the qualified employee 

15 participates in qualified reserve com16 ponent duty during the taxable year, 

17 including time spent in a travel sta18 tus, or 

19 ‘‘(ii) $30,000. 

20 The employment credit, with respect to all 

21 qualified employees, is equal to the sum of the 

22 employment credits for each qualified employee 

23 under this subsection. 

24 ‘‘(B) AVERAGE DAILY QUALIFIED COM25 PENSATION AND AVERAGE DAILY MILITARY PAY
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1 AND ALLOWANCES.—As used with respect to a 

2 qualified employee— 

3 ‘‘(i) the term ‘average daily qualified 

4 compensation’ means the qualified com5 pensation of the qualified employee for the 

6 taxable year divided by the difference be7 tween— 

8 ‘‘(I) 365, and 

9 ‘‘(II) the number of days the 

10 qualified employee participates in 

11 qualified reserve component duty dur12 ing the taxable year, including time 

13 spent in a travel status, and 

14 ‘‘(ii) the term ‘average daily military 

15 pay and allowances’ means— 

16 ‘‘(I) the amount paid to the 

17 qualified employee during the taxable 

18 year as military pay and allowances 

19 on account of the qualified employee’s 

20 participation in qualified reserve com21 ponent duty, divided by 

22 ‘‘(II) the total number of days 

23 the qualified employee participates in 

24 qualified reserve component duty, in25 cluding time spent in travel status. 
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1 ‘‘(C) QUALIFIED COMPENSATION.—When 

2 used with respect to the compensation paid or 

3 that would have been paid to a qualified em4 ployee for any period during which the qualified 

5 employee participates in qualified reserve com6 ponent duty, the term ‘qualified compensation’ 

7 means— 

8 ‘‘(i) compensation which is normally 

9 contingent on the qualified employee’s 

10 presence for work and which would be de11 ductible from the taxpayer’s gross income 

12 under section 162(a)(1) if the qualified 

13 employee were present and receiving such 

14 compensation, 

15 ‘‘(ii) compensation which is not char16 acterized by the taxpayer as vacation or 

17 holiday pay, or as sick leave or pay, or as 

18 any other form of pay for a nonspecific 

19 leave of absence, and with respect to which 

20 the number of days the qualified employee 

21 participates in qualified reserve component 

22 duty does not result in any reduction in 

23 the amount of vacation time, sick leave, or 

24 other nonspecific leave previously credited 

25 to or earned by the qualified employee, and 
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1 ‘‘(iii) group health plan costs (if any) 

2 with respect to the qualified employee. 

3 ‘‘(D) QUALIFIED EMPLOYEE.—The term 

4 ‘qualified employee’ means a person who— 

5 ‘‘(i) has been an employee of the tax6 payer for the 91-day period immediately 

7 preceding the period during which the em8 ployee participates in qualified reserve 

9 component duty, and 

10 ‘‘(ii) is a member of the Ready Re11 serve of a reserve component of an Armed 

12 Force of the United States as defined in 

13 sections 10142 and 10101 of title 10, 

14 United States Code. 

15 ‘‘(2) QUALIFIED REPLACEMENT EMPLOYEES.— 

16 ‘‘(A) IN GENERAL.—The employment cred17 it with respect to a qualified replacement em18 ployee of the taxpayer for any taxable year is 

19 equal to 50 percent of the lesser of— 

20 ‘‘(i) the individual’s qualified com21 pensation attributable to service rendered 

22 as a qualified replacement employee, or 

23 ‘‘(ii) $12,000. 

24 The employment credit, with respect to all 

25 qualified replacement employees, is equal to the 
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1 sum of the employment credits for each quali2 fied replacement employee under this sub3 section. 

4 ‘‘(B) QUALIFIED COMPENSATION.—When 

5 used with respect to the compensation paid to 

6 a qualified replacement employee, the term 

7 ‘qualified compensation’ means— 

8 ‘‘(i) compensation which is normally 

9 contingent on the qualified replacement 

10 employee’s presence for work and which is 

11 deductible from the taxpayer’s gross in12 come under section 162(a)(1), 

13 ‘‘(ii) compensation which is not char14 acterized by the taxpayer as vacation or 

15 holiday pay, or as sick leave or pay, or as 

16 any other form of pay for a nonspecific 

17 leave of absence, and 

18 ‘‘(iii) group health plan costs (if any) 

19 with respect to the qualified replacement 

20 employee. 

21 ‘‘(C) QUALIFIED REPLACEMENT EM22 PLOYEE.—The term ‘qualified replacement em23 ployee’ means an individual who is hired to re24 place a qualified employee or a qualified self25 employed taxpayer, but only with respect to the 
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1 period during which such employee or taxpayer 

2 participates in qualified reserve component 

3 duty, including time spent in travel status. 

4 ‘‘(c) SELF-EMPLOYMENT CREDIT.—For purposes of 

5 this section— 

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

7 of a qualified self-employed taxpayer for any taxable 

8 year is equal to 50 percent of the lesser of— 

9 ‘‘(A) the excess, if any, of— 

10 ‘‘(i) the self-employed taxpayer’s aver11 age daily self-employment income for the 

12 taxable year over 

13 ‘‘(ii) the average daily military pay 

14 and allowances received by the taxpayer 

15 during the taxable year, while participating 

16 in qualified reserve component duty to the 

17 exclusion of the taxpayer’s normal self-em18 ployment duties for the number of days the 

19 taxpayer participates in qualified reserve 

20 component duty during the taxable year, 

21 including time spent in a travel status, or 

22 ‘‘(B) $30,000. 

23 ‘‘(2) AVERAGE DAILY SELF-EMPLOYMENT IN24 COME AND AVERAGE DAILY MILITARY PAY AND AL-
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1 LOWANCES.—As used with respect to a self-em2 ployed taxpayer— 

3 ‘‘(A) the term ‘average daily self-employ4 ment income’ means the self-employment in5 come (as defined in section 1402(b)) of the tax6 payer for the taxable year plus the amount paid 

7 for insurance which constitutes medical care for 

8 the taxpayer for such year (within the meaning 

9 of section 162(l)) divided by the difference be10 tween— 

11 ‘‘(i) 365, and 

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

13 participates in qualified reserve component 

14 duty during the taxable year, including 

15 time spent in a travel status, and 

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

17 and allowances’ means— 

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

19 during the taxable year as military pay 

20 and allowances on account of the tax21 payer’s participation in qualified reserve 

22 component duty, divided by 

23 ‘‘(ii) the total number of days the tax24 payer participates in qualified reserve com-
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1 ponent duty, including time spent in travel 

2 status. 

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

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

5 taxpayer who— 

6 ‘‘(A) has net earnings from self-employ7 ment (as defined in section 1402(a)) for the 

8 taxable year, and 

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

10 a reserve component of an Armed Force of the 

11 United States. 

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

13 employment credit or the self-employment credit provided 

14 in this section is in addition to any deduction otherwise 

15 allowable with respect to compensation actually paid to a 

16 qualified employee, qualified replacement employee, or 

17 qualified self-employed taxpayer during any period the 

18 qualified employee or qualified self-employed taxpayer par19 ticipates in qualified reserve component duty to the exclu20 sion of normal employment duties. 

21 ‘‘(e) COORDINATION WITH OTHER CREDITS.—The 

22 amount of credit otherwise allowable under sections 51(a) 

23 and 1396(a) with respect to any employee shall be reduced 

24 by the credit allowed by this section with respect to such 

25 employee. 
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1 ‘‘(f) LIMITATIONS.— 

2 ‘‘(1) APPLICATION WITH OTHER CREDITS.—

3 The credit allowed under subsection (a) for any tax4 able year shall not exceed the excess (if any) of— 

5 ‘‘(A) the regular tax for the taxable year 

6 reduced by the sum of the credits allowable 

7 under subpart A and sections 27, 29, and 30, 

8 over 

9 ‘‘(B) the tentative minimum tax for the 

10 taxable year. 

11 ‘‘(2) DISALLOWANCE FOR FAILURE TO COMPLY

12 WITH EMPLOYMENT OR REEMPLOYMENT RIGHTS OF

13 MEMBERS OF THE RESERVE COMPONENTS OF THE

14 ARMED FORCES OF THE UNITED STATES.—No credit 

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

16 for— 

17 ‘‘(A) any taxable year, beginning after the 

18 date of the enactment of this section, in which 

19 the taxpayer is under a final order, judgment, 

20 or other process issued or required by a district 

21 court of the United States under section 4323 

22 of title 38 of the United States Code with re23 spect to a violation of chapter 43 of such title, 

24 and 

25 ‘‘(B) the 2 succeeding taxable years. 
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1 ‘‘(3) DISALLOWANCE WITH RESPECT TO PER2 SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—

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

4 taxpayer with respect to any period by taking into 

5 account any person who is called or ordered to active 

6 duty for any of the following types of duty: 

7 ‘‘(A) Active duty for training under any 

8 provision of title 10, United States Code. 

9 ‘‘(B) Training at encampments, maneu10 vers, outdoor target practice, or other exercises 

11 under chapter 5 of title 32, United States Code. 

12 ‘‘(C) Full-time National Guard duty, as 

13 defined in section 101(d)(5) of title 10, United 

14 States Code. 

15 ‘‘(g) GENERAL DEFINITIONS AND SPECIAL RULES.—

16 For purposes of this section— 

17 ‘‘(1) SMALL BUSINESS EMPLOYER.— 

18 ‘‘(A) IN GENERAL.—The term ‘small busi19 ness employer’ means, with respect to any tax20 able year, any employer who employed an aver21 age of 50 or fewer employees on business days 

22 during such taxable year. 

23 ‘‘(B) CONTROLLED GROUPS.—For pur24 poses of subparagraph (A), all persons treated 

25 as a single employer under subsection (b), (c), 
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1 (m), or (o) of section 414 shall be treated as a 

2 single employer. 

3 ‘‘(2) MILITARY PAY AND ALLOWANCES.—The 

4 term ‘military pay’ means pay as that term is de5 fined in section 101(21) of title 37, United States 

6 Code, and the term ‘allowances’ means the allow7 ances payable to a member of the Armed Forces of 

8 the United States under chapter 7 of that title. 

9 ‘‘(3) QUALIFIED RESERVE COMPONENT

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

11 includes only active duty performed, as designated in 

12 the reservist’s military orders, in support of a con13 tingency operation as defined in section 101(a)(13) 

14 of title 10, United States Code. 

15 ‘‘(4) SPECIAL RULES FOR CERTAIN MANUFAC16 TURERS.— 

17 ‘‘(A) IN GENERAL.—In the case of any 

18 qualified manufacturer— 

19 ‘‘(i) subsections (b)(1)(A)(ii) and 

20 (c)(1)(B) shall be applied by substituting 

21 ‘$40,000’ for ‘$30,000’, 

22 ‘‘(ii) subsection (b)(2)(A)(ii) shall be 

23 applied by substituting ‘$20,000’ for 

24 ‘$12,000’, and 
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1 ‘‘(iii) paragraph (1)(A) of this sub2 section shall be applied by substituting 

3 ‘100’ for ‘50’. 

4 ‘‘(B) QUALIFIED MANUFACTURER.—For 

5 purposes of this paragraph, the term ‘qualified 

6 manufacturer’ means any person if— 

7 ‘‘(i) the primary business of such per8 son is classified in sector 31, 32, or 33 of 

9 the North American Industrial Classifica10 tion System, and 

11 ‘‘(ii) all of such person’s facilities 

12 which are used for production in such busi13 ness are located in the United States. 

14 ‘‘(5) CARRYBACK AND CARRYFORWARD AL15 LOWED.— 

16 ‘‘(A) IN GENERAL.—If the credit allowable 

17 under subsection (a) for a taxable year exceeds 

18 the amount of the limitation under subsection 

19 (f)(1) for such taxable year (in this paragraph 

20 referred to as the ‘unused credit year’), such 

21 excess shall be a credit carryback to each of the 

22 3 taxable years preceding the unused credit 

23 year and a credit carryforward to each of the 

24 20 taxable years following the unused credit 

25 year. 
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1 ‘‘(B) RULES.—Rules similar to the rules of 

2 section 39 shall apply with respect to the credit 

3 carryback and credit carryforward under sub4 paragraph (A). 

5 ‘‘(6) CERTAIN RULES TO APPLY.—Rules similar 

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

7 52 shall apply.’’. 

8 (b) CONFORMING AMENDMENT.—Section 55(c)(2) of 

9 the Internal Revenue Code of 1986 is amended by insert10 ing ‘‘30B(f)(1),’’ after ‘‘30(b)(3),’’. 

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

12 for subpart B of part IV of subchapter A of chapter 1 

13 of the Internal Revenue Code of 1986 is amended by add14 ing at the end 30A the following new item:

‘‘Sec. 30B. Employer wage credit for activated military reservists’’.

15 (d) EFFECTIVE DATE; SPECIAL RULE.— 

16 (1) EFFECTIVE DATE.—The amendments made 

17 by this section shall apply to amounts paid after 

18 September 11, 2001, in taxable years ending after 

19 such date. 

20 (2) WAIVER OF LIMITATIONS.—If refund or 

21 credit of any overpayment of tax resulting from the 

22 amendments made by this section is prevented at 

23 any time before the close of the 1-year period begin24 ning on the date of the enactment of this Act by the 

25 operation of any law or rule of law (including res ju-
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1 dicata), such refund or credit may nevertheless be 

2 made or allowed if claim therefor is filed before the 

3 close of such period.

Æ