Tax credit for employer guard and reserve expenses.
HB 1396 creates a new Indiana tax credit for employers that pay wages to employees who are members of a reserve component of the U.S. armed forces or the Indiana National Guard while those employees are away from work for training, drilling, or active duty orders during normal working hours. The credit is calculated as 50% of the employee’s normal hourly wage multiplied by the number of qualifying hours, and it applies only when the employee is not using paid leave for that time.
The bill defines eligible taxpayers broadly, including corporations, partnerships, trusts, estates, LLCs, LLPs, and certain nonprofit-related entities, and it allows the credit to be claimed against several state tax liabilities, including adjusted gross income tax, insurance premiums tax, nonprofit agricultural organization health coverage tax, and financial institutions tax. If the credit exceeds a taxpayer’s liability, the unused amount may be carried forward to later years, but it cannot be carried back, refunded, or assigned. Pass-through entities may also pass the credit through to owners or members in proportion to distributive income if the entity itself cannot use the credit.
HB 1396 would add a new chapter to the Indiana Code, IC 6-3.1-41, establishing a state tax incentive for employers of Indiana residents serving in the National Guard or military reserve. It would affect taxpayers with liability under the adjusted gross income tax, insurance premiums tax, nonprofit agricultural organization health coverage tax, and financial institutions tax, and it would require taxpayers to provide information to the Department of State Revenue to substantiate the credit. The bill is retroactive to taxable years beginning after December 31, 2024, and the new chapter is scheduled to expire July 1, 2028.
The bill appears to have a generally supportive policy posture, as it is framed as a tax benefit for employers who support service members in the Guard and reserves. The available record does not include committee testimony, amendments, or votes, so there is no documented opposition or debate in the provided materials. Overall, the measure seems intended to encourage retention and accommodation of military employees by offsetting employer costs.
The main policy issue embedded in the bill is the scope and cost of the credit, particularly because it is based on wages paid during military-related absences and is available across multiple tax types. Another potential point of contention is the exclusion of employees using paid leave, which limits the credit to situations where the employer is effectively absorbing the wage cost. The bill also raises administrative questions for the Department of State Revenue because taxpayers must submit information necessary to calculate the credit, and pass-through allocation rules may add complexity for entities and owners.