Did you know that if you’re a start-up company with annual gross receipts less than $5 million you can reduce your 2017 labor costs by up to 6.2%?
The Federal R&D tax credit is a dollar-for-dollar reduction of federal income tax liability for qualified expenditures incident to the development or improvement of a product, process, software, formula, or invention recently made permanent by The Protecting Americans from Tax Hikes Act of 2015 (PATH Act).
Previously, a company had to actually generate a profit and taxable income to utilize the R&D tax credit. The PATH Act allows start-up companies who haven’t generated federal income tax liabilities to utilize the credit against their payroll taxes.
The new payroll tax offset election allows qualified small businesses to elect to use a portion of their R&D tax credit to offset payroll taxes instead of waiting to use the credit against future income tax liabilities. In tax years beginning after December 31, 2015, companies with less than $5 million in gross receipts and less than five years removed from the first year of revenue have the option to apply up to $250,000 per year to offset payroll taxes.