Federal-Level R&D Tax Credit Program
The R&D Tax Credit (RTC) program was initially added to the U.S. Internal Revenue Code (hereinafter the “Code”) in 1981 through the Economic Recovery Tax Act of 1981 as a temporary provision of the Code. The RTC program had most recently expired on December 31, 2014. A tremendous paradigm shift to the RTC program was made possible through the PATH Act which not only renewed the RTC retroactively for all of calendar year 2015 but most importantly made the RTC program permanent. In addition, the enhanced RTC program has been considerably restructured to:
- Allow eligible small businesses (i.e., $50 million or less in gross receipts) to claim the credit against the Alternative Minimum Tax (hereinafter “AMT”) for tax years beginning after December 31, 2015; and
- Allow eligible startup companies (i.e., those with less than $5 million in gross receipts and earning revenue for less than 5 years) to claim up to $250,000 of the credit against the company’s federal payroll tax for tax years beginning after December 31, 2015.
The 4 Part Test to Qualify for R&D Tax Credits
What are Qualified Research Expenses (QREs)
State Enforcement Announcements
States and the R&D Credit
The R&D Tax Credit For Start-Up Companies
IRS Notice 2017-23 was announced March 30, 2017, and gave guidance on how eligible start-up companies (i.e., those companies with less than $ 5 million in gross receipts and earning revenue for less than 5 years) can take advantage of a new option enabling them to apply part or all of their R&D Tax Credit against their federal-level payroll tax liability, instead of their income tax liability, prior to January 1st of 2016, taxpayers could only take the R&D Tax Credit against their income tax liability.
How To Apply Up to $250,000 of Your Start-Ups R&D Tax Credit Against Federal-Level Payroll Tax Liability.
- Prepare Form 6765 entitled “Credit for Increasing Research Activities” and attach this form to a timely-filed business income tax return.
- Prepare Form 8974 entitled “Qualified Small Business Payroll Tax Credit for Increasing Research Activities”. This form must be attached to its payroll tax return (e.g., Form 941 entitled “Employer’s Quarterly Federal Tax Return”).
How PMBA Can Help Start-Up Companies
No taxable income? No problem! Several states have implemented refundable or transferable R&D credits, so do not assume you cannot utilize the credits you are generating. Our team can help you combine the tax credits with tax losses and turn that package into capital through tax certificate transfer programs. 15 states currently offer some form of this program.