How to Use Research Credit to Reduce Payroll Taxes

– The research tax credit can be applied against payroll taxes instead of income tax for small companies or start-up businesses.
– This option is important for businesses that have no income tax liability but do have payroll tax liabilities, making it an opportunity to immediately use research credits.
– To qualify for the election, a taxpayer must have gross receipts of less than $5 million and be no more than five years past the start-up period.
– An individual taxpayer only takes into account gross receipts from their businesses, not personal income.
– The election can only be made for a maximum of six years in a row, by either an entity or an individual. 1) The payroll tax election can only be applied against the employer’s old-age, survivors and disability liability (OASDI or Social Security portion of FICA taxes).
2) The election cannot be used to lower the employer’s liability for the Medicare portion of FICA taxes or any FICA taxes withheld and remitted to the government on behalf of employees.
3) The amount of research credit for which the election can be made cannot exceed $250,000 annually.
4) An individual or C corporation can only make the election for research credits that would have otherwise been carried forward.
5) The payroll tax election and research credit eligibility can be complex areas, and individuals can contact tax professionals for more information.

Help When Needed: Apply the Research Credit Against Payroll Taxes