The Federal Research and Development (R&D) Tax Credit is a tax credit that rewards U.S.-based companies to invest in technological innovation. Businesses with qualified R&D activities may be eligible to claim a federal income tax credit for costs related to their R&D.
A Qualified Small Business (QSB) (less than five years of gross revenue and less than $5,000,000 in gross revenue within the tax year) may be eligible to use up to $500,000 in R&D tax credits per year to pay the company portion of payroll taxes (Social Security and Medicare tax). Gross revenue consists of what you receive from sales, any interest, rents, royalties, dividends, or other income you received.
If you need help determining if you're qualified and calculating your credits, review the steps in this article.
If you're trying to apply R&D tax credits that were calculated by your CPA or R&D firm, continue with the steps below.
Important: You need to have an accountant admin in Gusto to redeem or apply tax credits that were calculated by your CPA or R&D firm. Contact us from the Help section of your account to help set up an accountant profile.
There are a few steps you need to take as an accountant to help your clients claim R&D tax credits.
Go to Advisory or Clients (they will take you to the same experience).
Select the client name.
Under More options, click Redeem third-party R&D tax credits.
Select the type of business income tax return the company uses.
Select the Fiscal Tax Year the company uses.
Enter the date the company filed its tax return.
The filing date is used to determine the first eligible quarter that the credit can be claimed.
If this company filed under a different Federal Employer Identification Number (FEIN) at any point in their corporate tax year, the previous FEIN is required for the Federal R&D credit filing.
Enter the total Federal R&D credit claimed.
This amount can be found on Line 36 of the 2024 Form 6765.
If you're applying credits from the 2023 Form 6765, the amount can be found on Line 44.
Click Save & Continue.
Select if your client has claimed part of this credit on a Form 941 this fiscal year.
If the company claimed the credit in any prior quarters, enter these values so we can determine their remaining Federal R&D credit.
Click Save & Continue.
Review the information to make sure everything is accurate.
Once you're ready, click File Tax Credit.
Determine if you’d like this credit to be taken in real-time (recommended), or quarterly (free).
The client should see the refund from the IRS about 8–12 weeks following the 941 filing (if not claiming the credit in real-time).
If your accounting firm processes payroll through Gusto, third-party R&D tax credits can be claimed for your firm by following the steps below.
Go to the Advisory section.
Click the client name.
Under More options, click Redeem third-party R&D tax credits.
Complete the R&D tax credit questionnaire to claim third-party R&D tax credits.
Reminders
The option to claim the credit in real-time only appears in your account if there's a remaining balance to apply credit to.
It also depends on when your accountant filed your most recent business income tax return because you're eligible to claim the credit on the first day of the following quarter.
Example: If your return was filed in May, the credit period begins July 1st (the first day of the next quarter) and runs through June 30th of the next year.
Only one credit can be claimed at a time until the full amount is used up.
Gusto does not apply the real-time R&D tax credit to Medicare, even though the IRS allows for it to be applied to employer Medicare once the employer's share of Social Security is exhausted.
We'll report any Medicare credit amounts on the quarterly filings and the IRS will refund the company.
If you claim your tax credit with a third party, you’ll be charged $100 per month in any month in which you claim the R&D tax credit in real time. This is free if you claim your tax credit using Gusto.
Reminder: Credits must be added in Gusto before real-time R&D can be set up.
Go to the Clients section.
Select the client's name.
Click Go to client account in the top-right corner.
In the client's account, at the bottom of the left menu, go to the company profile.
Click Customization.
Next to “Real Time Federal R&D Tax Credit,” click edit.
Toggle to Enabled.
Click Save.
You'll see the R&D tax credit savings on the next payroll you process.
At the bottom of the left menu, go to your company profile.
Click Customization.
Next to “Real Time Federal R&D Tax Credit,” click edit.
Toggle to Enabled.
Click Save.
You'll see the R&D tax credit savings on the next payroll you process.
If you do not wish to take the R&D tax credit in real time anymore, you may cancel at any time.
Go to the Clients section.
Select the client's name.
Click Go to client account in the top-right corner.
In the client's account, at the bottom of the left menu, go to the company profile.
Click Customization.
Next to “Real Time Federal R&D Tax Credit,” click edit.
Toggle to Disable.
You'll be billed for the full $100 monthly fee even if you disable mid-month.
Click Save.
At the bottom of the left menu, go to your company profile.
Click Customization.
Next to “Real Time Federal R&D Tax Credit,” click edit.
Toggle to Disable.
You'll be billed for the full $100 monthly fee even if you disable mid-month.
Click Save.
Once your company is set up to claim the credit, you can review summary reports about your federal R&D tax credit in the Reports section of your account.
After you’ve completed an audit of your company’s R&D expenses with your accountant, and filed Form 6765 with your business’ income tax return, your accountant can set you up to claim the credit in Gusto. Only one credit can be claimed at a time until the full amount is used up.
Your accountant will claim the credit for you using their accountant profile. They’ll need a few things first:
Your business’ most recent annual income tax return.
Any previous Form 8974, if you’ve already claimed part of the credit.
Important: Your accountant needs to submit all the necessary information to Gusto by the 15th of the last month of a given quarter for it to be included in the quarterly filing.
The R&D Credit cannot start being claimed until the quarter after your Federal Tax Return has been filed.
Example: If an admin enters 3/15/20 (Q1) as the Income Tax Return filing date, the credit cannot start being applied until 4/1/20 (Q2).
Gusto will then complete and file Form 941 as well as Form 8974, so your company can claim the credit and receive the refund. The IRS estimates the refund will take 10–12 weeks to arrive after we file.
Once your company is set up to claim the credit, you can review summary reports about your federal R&D tax credit in the Reports section of your account.