Job creation credit for small employers

(a)

Allowance of credit

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 inserting after section 45M the following new section:

45N.

Job creation credit for small employers

(a)

General rule

For purposes of section 38, in the case of a qualified small employer, the amount of the job creation credit determined under this section for a taxable year is an amount equal to 5 percent of the amount of qualified wages paid by the qualified small employer to a qualified employee during the taxable year. (b)

Limitations

(1)

Maximum credit

With respect to a qualified small employer, the total amount of the job creation credit determined under subsection (a) for any taxable year shall not exceed 25 percent of the qualified small employer’s regular tax liability (as defined in section 26(b)). (2)

Dollar limitation

With respect to a qualified employee, the amount of the job creation credit determined under subsection (a) for a taxable year shall not exceed $2,500. (3)

Employment requirement

With respect to a qualified employee employed by a qualified small employer, the amount of the job creation credit determined under subsection (a) shall be zero if the qualified small employer does not maintain during the first 180 days that the qualified employee is employed a number of employees equal to or greater than the number of employees employed by the employer on the first day of the qualified employee’s employment. (c)

Definitions

For purposes of this section, with respect to a taxable year— (1)

Qualified small employer

The term qualified small employer means an employer who employs not more than 100 employees during the taxable year. (2)

Qualified employee

In the case of a qualified small employer, the term qualified employee means an employee of the qualified small employer— (A)who is not hired to replace a former employee of the qualified small employer, (B)who completes the first 180 days and 960 hours of employment during such taxable year, and (C)whose employment by the qualified small employer results in an increase in the total number of employees employed by the qualified small employer. (3)

Qualified wages

In the case of a qualified small employer, the term qualified wages means any wages paid or incurred by the qualified small employer for services performed by an employee of such qualified small employer, except that such term shall not include the cash value of all remuneration (including benefits) paid in any medium other than cash. (d)

Denial of double benefit

No deduction shall be allowed under this chapter for any amount taken into account in determining the credit under this section. (e)

Election not to claim credit

This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.

(b)

Credit to be part of general business credit

Subsection (b) of section 38 of such Code (relating to general business credit) is amended by striking and at the end of paragraph (29), by striking the period at the end of paragraph (30) and inserting , and, and by adding at the end the following new paragraph:

(31)the job creation credit determined under section 45N(a).

(c)

Conforming amendment

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 45M the following new item:

Sec. 45N. Job creation credit for small employers.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2006.