107 
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
108 
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-
109 
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-
110 
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.