The Research and Development payroll tax credit, also known as the R&D payroll tax credit is a tax incentive designed for qualified businesses to offset their payroll tax. It is designed for new companies that perform research and technology development activities to be able to apply up to $500,000 of research credit against payroll tax liability. These R&D credits can be carried forward for up to 20 years.
Which Businesses Qualify for the R&D Payroll Tax Credit?
In order to qualify for the tax credit, a business must meet each of the following criteria:
- Have 5 years or less in revenue
- Have less than $5 million in revenue in the current year
- Have conducted qualifying research activities and expenditures
Documentation Needed to Claim the R&D Payroll Tax Credit
Documentation is extremely important to defending any R&D tax credit claims. This includes having a permitted purpose, technological uncertainty, the process of experimentation, and being technological in nature.
Permitted Purpose:
This means the purpose of the research activity was to improve the performance, reliability, functionality, or quality of a product (or software).
Technological Uncertainty:
There is uncertainty relating to how the product (or software) should be developed or designed.
Process of Experimentation:
There is a trial-and-error period to attempt to eliminate the above-mentioned uncertainty.
Technological in Nature:
The activity must be determined by principles of one or more of the following: Engineering, physical sciences, biological sciences, or computer science.
Our dedicated content compliance professionals at Source Advisors have the industry knowledge and insight to identify qualified technologies and activities that support payroll tax credit R&D claims. Proper documentation is essential to maintaining and protecting the payroll tax credit and our strategy helps substantiate R&D progression, protects company interests, and ensures maximum value.
How Do I Claim the R&D Payroll Tax Credit?
To claim the R&D payroll tax credit, your business will need to be a qualified small business and must elect to apply the research credit against payroll tax liability by completing and submitting Form 6765 to a timely-filed business income tax return.
The IRS provides these steps for claiming the R&D tax credit on payroll taxes:
- Complete Form 6765, make the election, and attach the completed form to your timely-filed business income tax return.
- Claim the payroll tax credit by completing Form 8974. You must attach this form to your payroll tax return, for example, your Form 941, Employer’s Quarterly Federal Tax Return.
When Can You Claim the R&D Tax Credit Against Payroll Taxes?
The R&D payroll tax credit can be claimed on a quarterly basis. This begins after you file your federal income tax return, at the first calendar quarter.
How Source Advisors Can Help With Your R&D Payroll Tax Credit
Companies of all sizes and across multiple industries meet the Federal Government’s test for innovation. At Source Advisors, we will help your company identify and document qualifying activities to claim the payroll tax credits you are due.
Go To This Link For Help On Your Payroll Tax Credit
