On March 30, 2017, the IRS released interim guidance explaining how eligible small businesses can take advantage of the Research & Experimentation (R&E or R&D) tax credit by electing to offset their 2017 payroll tax liability instead of their income tax liability. Previously, the R&E tax credit could only be used to offset income tax liability. This prevented many startup companies from taking advantage of the R&E tax credit since they are often in a pre-revenue or early stage revenue phase and paying little or no income tax.
The R&E tax credit is a dollar for dollar reduction of tax. The net benefit of the credit is approximately 6% of qualified expenditures coming from qualified wages, supplies and contract research.
The payroll tax credit is claimed on the 941 payroll tax return filed on the quarter following that in which the corporate return was filed. Excess credits can be carried forward to subsequent reporting periods.
If a qualified small business timely files its 2016 return without making the payroll tax credit election, it may make the election on an amended return filed on or before December 31, 2017.
Contact your RubinBrown advisor for more information about how your company can take advantage of this opportunity to offset payroll taxes.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
Research & Experimentation Tax Credit Services Overview