R&D Tax Credits

The R&D Tax Credit allows eligible businesses to reduce their federal and state income tax liabilities by claiming credits for qualified research activities within the United States. Businesses may qualify for a credit of up to 10% on eligible expenses, including wages, supplies, cloud services, and contractor payments.

Many businesses are surprised to learn they qualify for R&D tax credits, even without operating in a traditional “lab” environment. In fact, many companies in software development, manufacturing, engineering, and other innovation-driven industries are eligible. Qualifying activities generally involve technical uncertainty and experimentation aimed at improving the functionality, performance, reliability, or quality of products, processes, or software.

In addition to offsetting federal income taxes, eligible businesses may use the R&D tax credit to offset the employer portion of payroll taxes (i.e., FICA/Medicare), allowing companies to benefit from the credit even if they are not yet profitable.

To qualify for the payroll tax offset, a company must meet the following criteria:

• Incurred gross receipts for five years or less
• Generated less than $5 million in gross receipts in the year the credit is claimed