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Federal R&D Tax Credit overview

Qualifications

Beginning in 2017, qualified small businesses may be eligible to claim a federal tax credit for costs related to their research and development activities, up to $250,000 per fiscal year. 

In general, small businesses with less than $5 million of gross receipts, who have had gross receipts for five years or less, and who have qualified research and development costs may qualify.

How it works

The IRS allows employers to receive the tax credit by applying it against the employer’s share of Social Security payroll tax liabilities. To claim the credit, you must report it on your quarterly Form 941 along with a completed Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities). 

You should consult your tax advisor to determine whether the credit is available for your business.

Claiming the credit

Because the credit is taken against your Social Security taxes, your refund will be capped by the amount of Social Security taxes you owe. Your actual refund may be less than your total eligible credit, but don’t worry, you won’t lose the credit - you can carry it over into future years.

Learn more about how to claim the Federal R&D Tax Credit quarterly, or in real-time.

FAQs

Q: Can the R&D Credit be retroactively applied to previously closed quarters?

A: No, this is no longer accepted by the IRS. If a client has remaining credit they still need to claim, they can apply it for quarters going forward only. 

Q: Can we claim more than one credit?

A: No. Only one credit can be claimed at a time until the full amount is used up.

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