What to provide
- The payroll register for the tax year, with each employee's wages and work-location code.
- The year-end W-2 file, or a summary of Box 1 wages by employee.
- A schedule of qualified wages by employee and business component, with the qualified percentage applied.
What the examiner questions test
- F5 asks whether the wages claimed reconcile to payroll for each employee. The test is that every employee claimed appears in the register, the W-2 amount agrees, and the total agrees to the wage line supporting Form 6765.
- F4 asks how each employee's time was split; the payroll evidence supplies the wage base that the percentage is applied to.
- S1 and S2 use the work-location codes to test where the research was performed.
Common gaps
- Register totals that do not agree to the W-2 file, usually because of adjustments after year-end.
- Employees claimed who moved between entities or projects during the year.
- Wages used for another credit counted again here.
- No link from an employee to a business component, so wages cannot be assigned to a project.
Terminology
Qualified wages are wages under IRC section 3401(a), in practice W-2 Box 1, for performing, directly supervising or directly supporting qualified research. Keep the federal and state wage bases separate; the state base is limited to research performed in the state.