If you’re looking for a way to subsidize some of your company’s costs, applying for a research and development (R&D) tax credit may be an option — even if you’re a small business.
The R&D tax credit deadline is on September 30th in order to get the credit applied in the third quarter this year, so we’ve rounded up some common questions about the credit, along with how Justworks can help you out.
What is the R&D Tax Credit?
Eligible companies may claim the research & development (R&D) tax credit if they have expenditures related to the research and development of new processes and products, among other things. Companies need to apply an elected employer federal payroll tax credit in the first calendar quarter, which starts after the company files its entity income tax return.
A bill passed in 2015 called Protecting Americans From Tax Hikes (PATH) improved accessibility to R&D tax credits for small businesses. Now, eligible businesses with less than $50 million in gross receipts may offset the R&D tax credit against entity income tax liability. Additionally, eligible small businesses with less than $5 million in gross receipts may be allowed to offset the credit against payroll taxes.
How a Certified PEO Can Help
Justworks recently achieved IRS Certified PEO status. That comes with several benefits for our customers, including clarification of federal payroll tax liability, confidence in working with a PEO that is reputable, audited, and bonded, and a confirmation of tax credits — including the R&D tax credit.
Justworks may apply for research and development payroll tax credit on behalf of our customers if their company is eligible.
If you believe you’re eligible and would like to claim the R&D tax credit, confirm the following with your tax advisor:Company eligibility to claim the credit Amount of credit your company can claim Amount of credit that should be taken (if any) against income taxes vs. employer federal payroll taxes
Once you’ve gone through those steps, provide Justworks with a copy of IRS Form 8974 with all information completed other than Lines 8 through 12 of Part 2. We’ll handle the rest!
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.