‘‘(b) EMPLOYMENT CREDIT.—For purposes of this 
section—
‘‘(1) QUALIFIED EMPLOYEES.—
‘‘(A) IN GENERAL.—The employment cred-
it with respect to a qualified employee of the 
taxpayer for any taxable year is equal to 50 
percent of the lesser of—
‘‘(i) the excess, if any, of—
‘‘(I) the qualified employee’s av-
erage daily qualified compensation for 
the taxable year, over 
‘‘(II) 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 exclu-
sion of the qualified employee’s nor-
mal employment duties for the num-
ber of days the qualified employee 
participates in qualified reserve com-
ponent duty during the taxable year, 
including time spent in a travel sta-
tus, or 
‘‘(ii) $30,000.
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. 
‘‘(B) AVERAGE
DAILY
QUALIFIED
COM-
PENSATION AND AVERAGE DAILY MILITARY PAY 
AND ALLOWANCES.—As used with respect to a 
qualified employee—
‘‘(i) the term ‘average daily qualified 
compensation’ means the qualified com-
pensation of the qualified employee for the 
taxable year divided by the difference be-
tween—
‘‘(I) 365, and 
‘‘(II) the number of days the 
qualified 
employee 
participates 
in 
qualified reserve component duty dur-
ing the taxable year, including time 
spent in a travel status, and 
‘‘(ii) 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 com-
ponent duty, divided by 
‘‘(II) the total number of days 
the qualified employee participates in 
qualified reserve component duty, in-
cluding time spent in travel status. 
‘‘(C) QUALIFIED
COMPENSATION.—When 
used with respect to the compensation paid or 
that would have been paid to a qualified em-
ployee for any period during which the qualified 
employee participates in qualified reserve com-
ponent duty, the term ‘qualified compensation’ 
means—
‘‘(i) compensation which is normally 
contingent on the qualified employee’s 
presence for work and which would be de-
ductible from the taxpayer’s gross income 
under section 162(a)(1) if the qualified 
employee were present and receiving such 
compensation, 
‘‘(ii) compensation which is not char-
acterized 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 
‘‘(iii) group health plan costs (if any) 
with respect to the qualified employee. 
‘‘(D) QUALIFIED
EMPLOYEE.—The term 
‘qualified employee’ means a person who—
‘‘(i) has been an employee of the tax-
payer for the 31-day period immediately 
preceding the period during which the em-
ployee participates in qualified reserve 
component duty, and 
‘‘(ii) is a member of the Ready Re-
serve 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. 
‘‘(2) QUALIFIED REPLACEMENT EMPLOYEES.—
‘‘(A) IN GENERAL.—The employment cred-
it with respect to a qualified replacement em-
ployee of the taxpayer for any taxable year is 
equal to 50 percent of the lesser of—
‘‘(i) the individual’s qualified com-
pensation attributable to service rendered 
as a qualified replacement employee, or 
‘‘(ii) $12,000. 
The employment credit, with respect to all 
qualified replacement employees, is equal to the 
sum of the employment credits for each quali-
fied replacement employee under this sub-
section. 
‘‘(B) QUALIFIED
COMPENSATION.—When 
used with respect to the compensation paid to 
a qualified replacement employee, the term 
‘qualified compensation’ means—
‘‘(i) compensation which is normally 
contingent on the qualified replacement 
employee’s presence for work and which is 
deductible from the taxpayer’s gross in-
come under section 162(a)(1), 
‘‘(ii) compensation which is not char-
acterized 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
‘‘(iii) group health plan costs (if any) 
with respect to the qualified replacement 
employee. 
‘‘(C) 
QUALIFIED
REPLACEMENT
EM-
PLOYEE.—The term ‘qualified replacement em-
ployee’ means an individual who is hired to re-
place a qualified employee or a qualified self-
employed taxpayer, but only with respect to the 
period during which such employee or taxpayer 
participates in qualified reserve component 
duty, including time spent in travel status. 
‘‘(D) FAILURE
TO
MAKE
DIFFERENTIAL 
WAGE PAYMENTS.—The employment credit with 
respect to a qualified replacement employee of 
the taxpayer for any taxable year shall be zero 
if the taxpayer does not make all differential 
wage 
payments 
(as 
defined 
by 
section 
3401(i)(2)) for the taxable year to the qualified 
employee or the qualified self-employed tax-
payer (as the case may be) who is replaced by 
the qualified replacement employee. 
‘‘(c) SELF-EMPLOYMENT CREDIT.—For purposes of 
this section—
‘‘(1) IN GENERAL.—The self-employment credit 
of a qualified self-employed taxpayer for any taxable 
year is equal to 50 percent of the lesser of—
‘‘(A) the excess, if any, of—
‘‘(i) the self-employed taxpayer’s aver-
age daily self-employment income for the 
taxable year over 
‘‘(ii) 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-em-
ployment 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, or 
‘‘(B) $30,000. 
‘‘(2) AVERAGE
DAILY
SELF-EMPLOYMENT
IN-
COME AND AVERAGE DAILY MILITARY PAY AND AL-
LOWANCES.—As used with respect to a self-em-
ployed taxpayer—
‘‘(A) the term ‘average daily self-employ-
ment income’ means the self-employment in-
come (as defined in section 1402(b)) of the tax-
payer 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 be-
tween—
‘‘(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 tax-
payer’s participation in qualified reserve 
component duty, divided by 
‘‘(ii) the total number of days the tax-
payer participates in qualified reserve com-
ponent 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-employ-
ment (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. 
‘‘(d) CREDIT IN ADDITION TO DEDUCTION.—The 
employment credit or the self-employment credit provided 
in this section is in addition to any deduction otherwise 
allowable with respect to compensation actually paid to a 
qualified employee, qualified replacement employee, or 
qualified self-employed taxpayer during any period the 
qualified employee or qualified self-employed taxpayer par-
ticipates in qualified reserve component duty to the exclu-
sion of normal employment duties. 
‘‘(e) 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. 
‘‘(f) LIMITATIONS.—
‘‘(1) APPLICATION
WITH
OTHER
CREDITS.—
The credit allowed under subsection (a) for any tax-
able 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 re-
spect to a violation of chapter 43 of such title, 
and 
‘‘(B) the 2 succeeding taxable years. 
‘‘(3) DISALLOWANCE WITH RESPECT TO PER-
SONS ORDERED TO ACTIVE DUTY FOR TRAINING.—
No credit shall be allowed under subsection (a) to a 
taxpayer with respect to any period by taking into
account any person who 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, maneu-
vers, outdoor target practice, or other exercises 
under chapter 5 of title 32, United States Code. 
‘‘(C) Full-time National Guard duty, as 
defined in section 101(d)(5) of title 10, United 
States Code. 
‘‘(g) GENERAL DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) SMALL BUSINESS EMPLOYER.—
‘‘(A) IN GENERAL.—The term ‘small busi-
ness employer’ means, with respect to any tax-
able year, any employer who employed an aver-
age of 50 or fewer employees on business days 
during such taxable year. 
‘‘(B) CONTROLLED
GROUPS.—For pur-
poses 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. 
‘‘(2) MILITARY
PAY
AND
ALLOWANCES.—The 
term ‘military pay’ means pay as that term is de-
fined in section 101(21) of title 37, United States 
Code, and the term ‘allowances’ means the allow-
ances payable to a member of the Armed Forces of 
the United States under chapter 7 of that title. 
‘‘(3) 
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 con-
tingency operation as defined in section 101(a)(13) 
of title 10, United States Code. 
‘‘(4) SPECIAL RULE FOR CERTAIN MANUFAC-
TURERS.—
‘‘(A) IN
GENERAL.—In the case of any 
qualified manufacturer, paragraph (1)(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 per-
son is classified in sector 31, 32, or 33 of 
the North American Industrial Classifica-
tion System, and
‘‘(ii) all of such person’s facilities 
which are used for production in such busi-
ness are located in the United States. 
‘‘(5) CARRYBACK
AND
CARRYFORWARD
AL-
LOWED.—
‘‘(A) IN GENERAL.—If the credit allowable 
under subsection (a) for a taxable year exceeds 
the amount of the limitation under subsection 
(f)(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 sub-
paragraph (A). 
‘‘(6) CERTAIN RULES TO APPLY.—Rules similar 
to the rules of subsections (c), (d), and (e) of section 
52 shall apply.’’. 
(b) CONFORMING AMENDMENT.—Section 55(c)(2) of 
the Internal Revenue Code of 1986 is amended by insert-
ing ‘‘30B(f)(1),’’ after ‘‘30(b)(3),’’.
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end of 30A the following new item:
‘‘Sec. 30B. Employer wage credit for activated military reservists.’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
SEC. 6. EMPLOYER CONTRIBUTIONS TO IRAS OF CERTAIN 
MEMBERS OF THE UNIFORMED SERVICES. 
(a) IN GENERAL.—Section 3121 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following: 
‘‘(z) EMPLOYER CONTRIBUTIONS TO IRAS OF CER-
TAIN MEMBERS OF THE UNIFORMED SERVICES.—Noth-
ing in any paragraph of subsection (a) (other than para-
graphs (1) and (5)) shall exclude from the term ‘wages’ 
any employer payment on behalf of an individual to an 
individual retirement plan if such payment is made by the 
employer to such plan with respect to any period during 
which the individual is performing service in the uni-
formed services while on active duty for a period of more 
than 30 days.’’. 
(b) RAILROAD RETIREMENT.—Subsection (e) of Sec-
tion 3231 of such Code is amended by adding at the end 
the following new paragraph:
‘‘(1) EMPLOYER CONTRIBUTIONS TO IRAS OF 
CERTAIN
MEMBERS
OF
THE
UNIFORMED
SERV-
ICES.—Nothing in any paragraph of this subsection 
(other than paragraph (2)) shall exclude from the 
term ‘compensation’ any amount described in section 
3121(z).’’. 
(c) FEDERAL UNEMPLOYMENT TAX.—Section 3306 
of such Code is amended by adding at the end the fol-
lowing: 
‘‘(u) EMPLOYER CONTRIBUTIONS TO IRAS OF CER-
TAIN MEMBERS OF THE UNIFORMED SERVICES.—Noth-
ing in any paragraph of subsection (b) (other than para-
graphs (1) and (5)) shall exclude from the term ‘wages’ 
any employer payment on behalf of an individual to an 
individual retirement plan if such payment is made by the 
employer to such plan with respect to any period during 
which the individual is performing service in the uni-
formed services while on active duty for a period of more 
than 30 days.’’. 
(d) WITHHOLDING.—Section 3401(a) of such Code 
is amended by adding at the end the following new sub-
section: 
‘‘(u) EMPLOYER CONTRIBUTIONS TO IRAS OF CER-
TAIN MEMBERS OF THE UNIFORMED SERVICES.—Noth-
ing in any paragraph of subsection (a) (other than para-
graph (12)) shall exclude from the term ‘wages’ any 
amount described in section 3121(z).’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid after December 
31, 2004.
Æ