Better Tax Break When Applying the Research Credit Against Payroll Taxes
The credit for increasing research activities, often referred to as the research and development (R&D) credit, is a valuable tax break available to certain eligible small businesses. Claiming the credit involves complex calculations, which we’ll take care of for you.
But in addition to the credit itself, be aware that there are two additional features that are especially favorable to small businesses:
- Eligible small businesses ($50 million or less in gross receipts for the three prior tax years) may claim the credit against alternative minimum tax (AMT) liability.
- The credit can be used by certain smaller startup businesses against their Social Security payroll and Medicare tax liability.
Let’s take a look at the second feature. The Inflation Reduction Act (IRA) has doubled the amount of the payroll tax credit election for qualified businesses and made a change to the eligible types of payroll taxes it can be applied to, making it better than it was before the law changes kicked in.
Election basics
Subject to limits, your business can elect to apply all or some of any research tax credit that you earn against your payroll taxes instead of your income tax. This payroll tax election may […]