Tax Credit Helps Small Businesses Provide Differential Pay to Reservists Called to Active Duty

WASHINGTON, DC – The Senate Finance Committee today approved a package of tax credit extensions that included a 2-year extension of a provision in a bipartisan bill introduced by U.S. Senators Gary Peters (D-MI) and Joni Ernst (R-IA) that supports small businesses that provide differential pay to military reservists and National Guard members called to serve on active duty. There are over 820,000 reservists and National Guard members in the United States. Peters is a former Lt. Commander in the U.S. Navy Reserve, and Ernst continues to serve as a Lt. Colonel in the Iowa Army National Guard. 

“Military reservists in Michigan and across the country should never have to worry about whether their families will struggle to make ends meet while they are serving on active duty,” said Senator Peters. “Our reservists stand ready to serve our country in times of need, and it is our duty to support these servicemembers, their families and their employers who want to do the right thing. I’m pleased that the Senate Finance Committee has advanced legislation to extend this tax credit that will lessen the financial strain on military families and the small businesses that provide differential pay.”

“This commonsense tax credit benefits our small businesses, military families, and local communities in Iowa and nationwide by lessening the burden on employers who go the extra step to provide differential pay for our National Guard and Reserve servicemembers serving on Active Duty,” said Senator Ernst. “While I would prefer a longer term extension, I am encouraged that the Senate Finance Committee included a two year extension of this small business tax credit in today’s markup. This is a critical step forward for our men and women who deserve the financial peace of mind.” 

In March, Peters and Ernst introduced the Military Reserve Small Business Jobs Act of 2015 to extend the differential pay tax credit for five years to support small businesses and help provide financial security for reservists and their families while on active duty. Peters and Ernst recently sent a letter to the Chairman and Ranking Member of the Senate Finance Committee urging them to extend this expired tax provision and provide more certainty for small businesses and reservists who count on this financial support.

Originally enacted in 2008 as part of the bipartisan Heroes Earnings Assistance and Relief Tax Act (HEART Act), the employer wage credit for activated military reservists provides a tax credit for 20 percent of the differential salary payment for small businesses with fewer than 50 employees. For an employee who earns $3,000 per month from their small business employer, but is paid $2,000 per month while on active duty, the provision would provide a $200 credit for the small business to pay the employee’s $1,000 wage difference.

The differential pay tax credit is supported by the Reserve Officers Association, the Enlisted Association of the National Guard of the United States and the National Military Family Association.

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