Starting from 2017, for the first time, the R&D Tax Credits can be applied against regular Payroll Taxes. Start-up companies and small businesses may be eligible to apply up to $1.25M—or $250K each year for up to five years—of the federal R&D credit to offset the Federal Insurance Contributions Act (FICA) portion of their payroll taxes each year.
That means that even if you don’t have any income tax liability to be offset by those credits, as long as you have payrolls, you can use those credits to reduce the payroll taxes.
To be eligible, a company must meet two requirements:
- Have less than $5 million in gross receipts for the credit year
- Have no more than five years of gross receipts
The R&D credit is calculated on the federal income tax return as usual and may be applied against payroll taxes starting the quarter after the credit is claimed. For calendar-year taxpayers, the R&D credit can be applied against payroll taxes as early as July of the following year.