To amend the Internal Revenue Code of 1986 to allow employers a credit against income tax for hiring military service personnel who served in a combat zone or a hazardous duty area.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Veterans' Employment Transition 
Support Act of 2005'' or the ``VETS Act of 2005''.

SEC. 2. CREDIT FOR EMPLOYERS HIRING MILITARY SERVICE PERSONNEL WHO 
              SERVED IN A COMBAT ZONE OR A HAZARDOUS DUTY AREA.

    (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. 45J. CREDIT FOR EMPLOYERS HIRING MILITARY SERVICE PERSONNEL WHO 
              SERVED IN A COMBAT ZONE OR A HAZARDOUS DUTY AREA.

    ``(a) General Rule.--For purposes of section 38, the military 
service personnel employment credit for the taxable year shall be equal 
to--
            ``(1) except as provided in paragraph (2), 40 percent of 
        the qualified first-year wages for such year, and
            ``(2) in the case of a disabled qualified veteran, the 
        applicable percentage of the qualified first-year wages for 
        such year.
    ``(b) Qualified Wages.--For purposes of this section--
            ``(1) In general.--The term `qualified wages' means the 
        wages paid or incurred by the employer during the taxable year 
        to individuals who are qualified veterans.
            ``(2) Qualified first-year wages.--The term `qualified 
        first-year wages' means, with respect to any individual, 
        qualified wages attributable to service rendered during the 1-
        year period beginning with the day the individual begins work 
        for the employer.
            ``(3) Wages.--The term `wages' has the meaning given such 
        term by section 51(c), without regard to paragraph (4) thereof.
    ``(c) Qualified Veteran; Hiring Date.--For purposes of this 
section--
            ``(1) In general.--The term `qualified veteran' means any 
        individual who is certified by the designated local agency (as 
        defined in section 51(d)(11))--
                    ``(A) as being a veteran (as defined in section 
                51(d)(3)(B)) who performed services in an area 
                designated by the President for purposes of this 
                section as a combat zone or as a hazardous duty area, 
                and
                    ``(B) as having been honorably discharged from 
                active duty in the Armed Forces of the United States.
            ``(2) Hiring date.--The term `hiring date' has the meaning 
        given such term by section 51(d).
    ``(d) Disabled Qualified Veteran; Applicable Percentage.--
            ``(1) In general.--The term `disabled qualified veteran' 
        means any qualified veteran who is certified by the designated 
        local agency (as so defined) as having a disability that has 
        been determined under the laws administered by the Secretary of 
        Veterans Affairs to be service-connected and that is rated by 
        such Secretary (as of the date of the certification) as 10 
        percent or more disabling.
            ``(2) Applicable percentage.--The term `applicable 
        percentage' means the percentage determined in accordance with 
        the following table:


``Percentage of disability:         Applicable  percentage:
At least 10 but not over 20.......  41
At least 20 but not over 30.......  42
At least 30 but not over 40.......  43
At least 40 but not over 50.......  44
At least 50 but not over 60.......  45
At least 60 but not over 70.......  46
At least 70 but not over 80.......  47
At least 80 but not over 90.......  48
At least 90 but not over 100......  49
100 percent.......................  50

    ``(e) Certain Rules to Apply.--Rules similar to the rules of 
section 52, and subsections (d)(11), (f), (g), (i) (as in effect on the 
day before the date of the enactment of the Taxpayer Relief Act of 
1997), (j), and (k) of section 51, shall apply for purposes of this 
section.''.
    (b) Credit to Be Part of General Business Credit.--Subsection (b) 
of section 38 of such Code is amended by striking ``plus'' at the end 
of paragraph (18), by striking the period at the end of paragraph (19) 
and inserting ``, plus'', and by adding at the end the following new 
paragraph:
            ``(20) the military service personnel employment credit 
        determined under section 45J(a).''.
    (c) Technical Amendments.--
            (1) Clause (iii) of section 41(b)(2)(D) of such Code is 
        amended to read as follows:
                            ``(iii) Exclusion for wages to which 
                        employment credits apply.--The term `wages' 
                        shall not include any amount taken into account 
                        in determining the credit under section 45J(a) 
                        or 51(a).''.
            (2) Subparagraph (B) of section 45A(b)(1) of such Code is 
        amended to read as follows:
                    ``(B) Coordination with other employment credits.--
                The term `qualified wages' shall not include wages 
                attributable to service rendered during the 1-year 
                period beginning with the day the individual begins 
                work for the employer if any portion of such wages is 
                taken into account in determining the credit under 
                section 45J or 51.''.
            (3) Subsection (a) of section 280C of such Code is amended 
        by inserting ``45J(a),'' after ``45A(a),''.
            (4) Paragraph (3) of section 1396(c) of such Code is 
        amended to read as follows:
            ``(3) Coordination with other employment credits.--
                    ``(A) In general.--The term `qualified wages' shall 
                not include wages taken into account in determining the 
                credit under section 45J or 51.
                    ``(B) Coordination with paragraph (2).--The $15,000 
                amount in paragraph (2) shall be reduced for any 
                calendar year by the amount of wages paid or incurred 
                during such year which are taken into account in 
                determining the credits under sections 45J and 51.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following new item:

``Sec. 45J. Credit for employers hiring military service personnel who 
                            served in a combat zone or a hazardous duty 
                            area.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after the date of 
the enactment of this Act.

Summary: Veterans' Employment Transition Support Act of 2005 or the VETS Act of 2005 - Amends the Internal Revenue Code to allow employers a general business tax credit for hiring veterans who served in a combat zone or a hazardous duty area and were honorably discharged from active duty. Sets the amount of such credit at 40 percent of the first-year wages of such veterans and increases the percentage of such credit for disabled veterans based upon their disability ratings.