If a business dedicates resources to creating or improving
products, processes or software, it may be eligible for substantial
federal tax credits for increasing research activities. However,
the company must have sufficient federal tax liability to offset
the credit in order to receive the benefits. Historically, that
meant income tax liability, but qualifying small
businesses may now elect to apply their research credit of up to
$250,000 in payroll taxes. This article provides details
on how to claim a research payroll credit. A Sidebar explains how a
business can claim the credit on its 2016 return.
Recent History
The Protecting Americans from Tax Hikes (PATH) Act of 2015 not
only made the research credit permanent, but also it created
the payroll tax election for the research credit (often referred to
as the research and development, R&D or research and
experimentation credit). IRS Notice 2017-23 provides interim
guidance on claiming research credits against
