Recent R&D Updates

Brief History:

  • The R&D credit was enacted in 1981 as a temporary credit and has been extended 16 times.
  • The credit last expired on December 31, 2014
  • On December 18, 2015 under the Protecting Americans from Tax Hikes (PATH) Act of 2015, the R&D tax credit has been permanently extended by Congress
  • The permanent extension of the R&D tax credit is effective as of January 1, 2015

Legislation made two key expansions to the R&D credit which benefit certain small businesses.  This is effective as of January 1, 2016:

  • "Eligible Small Businesses" will be able to use the R&D tax credit to offset alternative minimum tax (AMT). An Eligible Small Business is defined as a business with less than $50 million in average gross receipts for the three preceding years. Under prior law, the R&D tax credit could only be used to offset regular tax, which limited several small to mid-sized businesses to use the credit if they were subject to AMT.
  •  The bill includes a provision that opens the credit up for start-ups, allowing businesses with less than $5 million in annual gross receipts and having gross receipts for no more than five years, will now be able to use the R&D tax credit to offset the FICA employer portion of payroll tax. The amount of credit that can be used to offset payroll tax is capped at $250,000 for each eligible year.  This is the first time start-up companies can benefit from the R&D Credit.

 These changes will be a great help to companies across the nation and will put valuable tax dollars back into the pockets of U.S. businesses for job creation and economic growth.

Submitted By: Joyce Exmundo