SB 407 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 to include corporations, partnerships, trusts, estates, LLCs, and LLPs, and it allows the credit to offset 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 refunded, carried back, or assigned. Pass-through entities may pass the credit through to owners in proportion to distributive income if the entity itself cannot use it.
The bill is retroactive to January 1, 2025, and applies to taxable years beginning after December 31, 2024. It also includes an emergency clause and is set to expire on July 1, 2028, indicating it is intended as a temporary policy. The Department of State Revenue is authorized to require information needed to verify and calculate the credit.
The overall sentiment appears strongly supportive. The Senate Veterans Affairs and The Military Committee reported the bill out unanimously, 8-0, with a do-pass recommendation, suggesting broad agreement that the measure supports service members and their employers. The bill’s placement in the tax committee after that vote indicates the remaining discussion is likely to focus on fiscal and administrative details rather than the basic policy goal.
The main point of potential contention is fiscal impact: the credit reduces state tax revenue and creates a new administrative process for claiming and verifying eligibility. Another possible issue is whether the credit should apply when an employee uses paid leave, since the bill expressly excludes those periods, which may limit employer relief and could affect how the benefit is used in practice.
SB 407 adds a new chapter to Indiana Code chapter 6-3.1 establishing a refundable-style tax benefit structure for employers, though the credit itself is not refundable. It affects state tax administration by requiring taxpayers to claim the credit on annual returns and provide documentation the Department of State Revenue deems necessary. The bill also modifies the tax treatment of pass-through entities by allowing unused credits to flow through to owners under specified conditions. The credit applies to multiple state tax regimes, including income, insurance premiums, nonprofit agricultural health coverage, and financial institutions taxes.
The available legislative history shows favorable sentiment toward the bill. The Senate Committee on Veterans Affairs and The Military approved it unanimously, 8-0, and advanced it with a do-pass recommendation. That vote suggests the policy is viewed positively as a way to support employers of Guard and reserve members and to recognize the service obligations of those employees. No opposing testimony or recorded dissent is included in the provided materials.
The most likely areas of contention are cost and administration. Because the bill creates a new tax credit against several state tax liabilities and allows carryforwards, fiscal analysts and tax policymakers may scrutinize its revenue effect. There may also be debate over the exclusion of employees using paid leave, which narrows eligibility and could be seen either as preventing double benefits or as limiting support for employers. Finally, the Department of State Revenue’s authority to require additional information may raise compliance and verification concerns for affected taxpayers.