Incentivizing Small Business Employee Retention Act of 2026

amount of the work opportunity credit determined under this section for the taxable year shall include-- ``(A) 50 percent of the qualified second-year wages for such year, ``(B) 75 percent of the qualified third-year wages for such year, ``(C) 90 percent of the qualified fourth-year wages for such year, and ``(D) 100 percent of the qualified fifth-year wages for such year. ``(2) Limitation on wages per year taken into account.-- ``(A) In general.--The amount of the qualified second-year wages, qualified third-year wages, qualified fourth-year wages, or qualified fifth-year wages which may be taken into account with respect to any individual shall not exceed the applicable amount for the taxable year. ``(B) Applicable amount.--For purposes of subparagraph (A), the term `applicable amount' means-- ``(i) in the case of any individual who is a qualified veteran by reason of subsection (d)(3)(A)(ii)(II), the dollar amount in effect for the taxable year under subsection (b)(3)(B)(i), ``(ii) in the case of any individual who is a qualified veteran by reason of subsection (d)(3)(A)(iv), the dollar amount in effect for the taxable year under subsection (b)(3)(B)(ii), ``(iii) in the case of any individual who is a qualified veteran by reason of subsection (d)(3)(A)(ii)(I), the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iii), ``(iv) in the case of any individual who is a long-term family assistance recipient, the dollar amount in effect for the taxable year under subsection (e)(1)(B), and ``(v) in the case of any individual not described in clause (i), (ii), (iii), or (iv), the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv). ``(3) Individuals not meeting minimum employment periods.-- ``(A) Reduction of increased credit for individuals performing fewer than 400 hours of service.--In the case of an individual who has performed at least 120 hours, but less than 400 hours, of service for the qualified small business during the taxable year, paragraph (1) shall be applied-- ``(i) by substituting `30 percent' for `50 percent' in subparagraph (A) thereof, ``(ii) by substituting `40 percent' for `75 percent' in subparagraph (B) thereof, ``(iii) by substituting `45 percent' for `90 percent' in subparagraph (C) thereof, and ``(iv) by substituting `50 percent' for `100 percent' in subparagraph (D) thereof. ``(B) Denial of increased credit for individuals performing fewer than 120 hours of service.--No wages shall be taken into account under paragraph (1) with respect to any individual unless such individual has performed at least 120 hours of service for the qualified small business during the taxable year. ``(4) Special rules for agricultural and railway labor.--In the case of a long-term family assistance recipient to whom subparagraph (A) or (B) of subsection (i)(1) applies, rules similar to the rules of such subparagraphs shall apply except that-- ``(A) such subparagraph (A) shall be applied by substituting `the dollar amount in effect for the taxable year under subsection (e)(1)(B)' for `the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv)', and ``(B) such subparagraph (B) shall be applied by substituting `\1/12\ of the dollar amount in effect for the taxable year under subsection (e)(1)(B)' for `\1/ 12\ of the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv)'. ``(5) Definitions.--For purposes of this subsection-- ``(A) Qualified small business.--The term `qualified small business' means any person which is a small business concern (as defined in section 3 of the Small Business Act). ``(B) Qualified second-year wages.--The term `qualified second-year wages' means qualified wages-- ``(i) which are paid to an individual with respect to whom the qualified small business claimed credit under this section for the qualified first-year wages of such individual, and ``(ii) which are attributable to service rendered during the 1-year period beginning on the day after the last day of the 1-year period with respect to such individual determined under subsection (b)(2). ``(C) Qualified third-year wages.--The term `qualified third-year wages' means qualified wages-- ``(i) which are paid to an individual with respect to whom the qualified small business claimed credit under this section for the qualified first-year wages and qualified second-year wages of such individual, and ``(ii) which are attributable to service rendered during the 1-year period beginning on the day after the last day of the 1-year period with respect to such individual determined under subparagraph (B). ``(D) Qualified fourth-year wages.--The term `qualified fourth-year wages' means qualified wages-- ``(i) which are paid to an individual with respect to whom the qualified small business claimed credit under this section for the qualified first-year wages, qualified second- year wages, and qualified third-year wages of such individual, and ``(ii) which are attributable to service rendered during the 1-year period beginning on the day after the last day of the 1-year period with respect to such individual determined under subparagraph (C). ``(E) Qualified fifth-year wages.--The term `qualified fifth-year wages' means qualified wages-- ``(i) which are paid to an individual with respect to whom the qualified small business claimed credit under this section for the qualified first-year wages, qualified second- year wages, qualified third-year wages, and qualified fourth-year wages of such individual, and ``(ii) which are attributable to service rendered during the 1-year period beginning on the day after the last day of the 1-year period with respect to such individual determined under subparagraph (D). ``(6) Regulations.--The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this subsection, including regulations or other guidance providing for requirements for recordkeeping or information reporting for purposes of administering this subsection.''. (2) Conforming amendments.-- (A) Section 51 of such Code, as amended by the preceding provisions of this section, is amended-- (i) in subsection (c)(1), by striking ``subsection (h)(2)'' and inserting ``subsection (i)(2)'', (ii) in subsection (e)-- (I) in paragraph (1), in the matter preceding subparagraph (A), by striking ``With'' and inserting ``Subject to subsection (f), with'', and (II) in paragraph (3), by striking ``subsection (h)(1)'' and inserting ``subsection (i)(1)'', and (iii) in subsection (g)(2), by striking ``subsection (h)(1)'' and inserting ``subsection (i)(1)''. (B) Section 45A of such Code is amended-- (i) in subsection (b)(1)(B), by adding at the end the following new sentence: ``If any portion of wages are taken into account under subsection (f)(1) of section 51, the preceding sentence shall be applied by substituting `5- year period' for `1-year period'.'', (ii) in subsection (c)(5)(A), by striking ``section 51(i)(1)'' and inserting ``section 51(j)(1)'', and (iii) in subsection (e)(3), by striking ``section 51(k)'' and inserting ``section 51(l)''. (C) Section 45S(h)(2) of such Code is amended by striking ``section 51(j)'' and inserting ``section 51(k)''. (D) Section 1396(d)(2)(A) of such Code is amended by striking ``section 51(i)(1)'' and inserting ``section 51(j)(1)''. (E) Section 1397(c) of such Code is amended by striking ``section 51(k)'' and inserting ``section 51(l)''. (F) Section 3111(e)(3)(B) of such Code is amended by striking ``subsection (i)(3)(A)'' and inserting ``subsection (j)(3)(A)''. (c) Inflation Adjustment.-- (1) In general.--Section 51 of such Code, as amended by the preceding provisions of this section, is amended by adding at the end the following new subsection: ``(m) Inflation Adjustment.-- ``(1) In general.--In the case of any taxable year beginning after 2027, each of the dollar amounts in subsection (b)(3)(B) and the $10,000 amount in subsection (e)(1)(B) shall be increased by an amount equal to-- ``(A) such dollar amount, multiplied by ``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2026' for `calendar year 2016' in subparagraph (A)(ii) thereof. ``(2) Rounding.--Any increase determined under paragraph (1) shall be rounded to the nearest multiple of $100.''. (2) Conforming amendments.-- (A) Limitation on wages per year taken into account.--Section 51(b)(3) of such Code is amended to read as follows: ``(3) Limitation on wages per year taken into account.-- ``(A) In general.--The amount of the qualified first-year wages which may be taken into account with respect to any individual shall not exceed the applicable amount for the taxable year. ``(B) Applicable amount.--For purposes of subparagraph (A), the term `applicable amount' means-- ``(i) $24,000 in the case of any individual who is a qualified veteran by reason of subsection (d)(3)(A)(ii)(II), ``(ii) $14,000 in the case of any individual who is a qualified veteran by reason of subsection (d)(3)(A)(iv), ``(iii) $12,000 in the case of any individual who is a qualified veteran by reason of subsection (d)(3)(A)(ii)(I), and ``(iv) $6,000 in the case of any individual not described in clause (i), (ii), or (iii).''. (B) Qualified summer youth employees.--Section 51(d)(7)(B)(ii) of such Code is amended to read as follows: ``(ii) the amount of the qualified first- year wages which may be taken into account with respect to such employee shall not exceed 50 percent of the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv).''. (C) Special rules for agricultural labor and railway labor.-- (i) In general.--Section 51(i)(1) of such Code, as redesignated by subsection (b), is amended-- (I) in subparagraph (A), by striking ``$6,000'' and inserting ``the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv)'', and (II) in subparagraph (B), by striking ``$500'' and inserting ``\1/ 12\ of the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv)''. (ii) Related conforming amendments.-- Section 51(e)(3) of such Code is amended by striking subparagraphs (A) and (B) and inserting the following new subparagraphs: ``(A) such subparagraph (A) shall be applied by substituting `the dollar amount in effect for the taxable year under subsection (e)(1)(B)' for `the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv)', and ``(B) such subparagraph (B) shall be applied by substituting `\1/12\ of the dollar amount in effect for the taxable year under subsection (e)(1)(B)' for `\1/ 12\ of the dollar amount in effect for the taxable year under subsection (b)(3)(B)(iv)'.''. (d) Effective Dates.-- (1) Extension.--The amendment made by subsection (a) shall apply to individuals who begin work for the employer after December 31, 2025. (2) Enhancement; inflation adjustment.--The amendments made by subsections (b) and (c) shall apply to individuals who begin work for the employer after December 31, 2026. SEC. 4. REPORTS. (a) In General.--The Secretary of the Treasury (or the Secretary's delegate) shall, in consultation with the Administrator of the Small Business Administration, submit to the appropriate congressional committees a report for each of taxable years 2027 through 2030 on-- (1) the number of small businesses that claim the increased work opportunity credit for qualified small businesses under section 51(f) of the Internal Revenue Code of 1986, (2) the employee retention rates and wage growth of such businesses, (3) the fiscal effect of the increased work opportunity credit for qualified small businesses under section 51(f) of such Code, and (4) opportunities to improve outreach to small businesses regarding the availability of the work opportunity credit under section 51 of such Code, including the increased credit for qualified small businesses under subsection (f) of such section. (b) Appropriate Congressional Committees.--For purposes of this section, the term ``appropriate congressional committees'' means-- (1) the Committee on Ways and Means of the House of Representatives, (2) the Committee on Small Business of the House of Representatives, (3) the Committee on Finance of the Senate, and (4) the Committee on Small Business and Entrepreneurship of the Senate. <all>