Federal program
Federal Research & Development Tax Credit (IRC Section 41)
The nationwide credit for increasing research activities, available to companies of any size that improve products, processes, software or formulations in the United States.
Program overview
Enacted in 1981 and made permanent by the PATH Act of 2015, the federal research credit rewards businesses that invest in technical experimentation on US soil. Taxpayers may compute the credit under the regular method or the Alternative Simplified Credit (ASC) method, and qualified small businesses may elect to apply a portion of the credit against payroll taxes rather than income tax. Claims are supported by contemporaneous documentation of qualified research expenses (QREs), including wages for employees performing or directly supervising research, supply costs consumed in the research process, contract research paid to US-based third parties, and certain cloud computing costs.
Eligibility
Any US taxpayer conducting activities that satisfy the four-part test: a permitted purpose, technological in nature, elimination of technical uncertainty, and a process of experimentation. Funded research, research conducted outside the US, routine quality control, market research, and post-commercial-production activities are excluded.
Benefits
Dollar-for-dollar reduction of federal income tax liability. Qualified small businesses (gross receipts under $5M and no gross receipts more than five years back) may elect to offset up to $500,000 of payroll taxes annually.
Find out what your research actually qualifies for
A scoping conversation takes thirty minutes and costs nothing. You leave with a view on eligibility, likely credit range and the documentation you would need.