Can you benefit from the Research and Development Payroll Tax Credit?

March 4, 2019

R&D Payroll Tax Credit

The early years of a company can be filled with lots of expenses working through research and development (R&D) and getting ready to go to market. If this is where you are at, please keep reading to see if you might be eligible for the R&D payroll tax credit. 

R&D expenditures generally include all expenditures incident to the development or improvement of a product. R&D expenditures include the expenditures of obtaining a patent, such as attorney’s fees expended in making and perfecting a patent application. Our friends at inDinero put together a great list of R&D tax credit examples >> check it out here.

Any company that designs, develops, or improves products, processes, techniques, formulas, inventions, or software may be eligible. In fact, if a company has simply invested time, money, and resources toward the advancement and improvement of its products and processes, it may qualify.

So what is a “product”? The term “product” includes any of the following:

  • Formula
  • Invention
  • Patent
  • Pilot model
  • Process
  • Technique
  • Similar property

R&D expenditures do not include expenditures for any of the following:

  • Quality control testing
  • Advertising or promotions
  • Consumer surveys
  • Efficiency surveys
  • Management studies
  • Research in connection with the literary, historical, or similar projects
  • The acquisition of another’s patent, model, or production process

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) offered the option for qualifying startups to elect the R&D credit to offset the employer’s portion of the social security (OASDI) payroll tax liability. This allows companies who haven’t been able to utilize the R&D credit because they didn’t have a tax liability to benefit sooner and have an incentive for R&D.

Connect with our tax director to take advantage of the R&D tax credit.