R&D Credit Lessens Payroll Tax Liability for Startups
Photo: Kevin McNulty of Withum Photo Credit: WithumSmith+Brown
Kevin McNulty of Withum | WithumSmith+Brown

[ Reposted with the author's permission from the WithumSmith+Brown website here.]

For startups and small businesses with gross receipts of less than $5 million, the IRS has allowed up to $250,000 of an R&D credit to be applied against the company’s payroll tax liability.

IRS Code Section 41 – R&D credit – was created to give startups an added benefit in the processes of conducting research in the name of innovative product creation, even if these activities are not profitable. So how do you, as a startup, use the R&D credit to offset your payroll tax liability?

Assuming you did not incur any gross receipts prior to 2012, you have two options to maximize your R&D credit for your 2016 tax year, but the election must be done prior to December 31, 2017.

  • Haven’t filed your 2016 business income tax return? Timely file your 2016 return accompanied by a completed Form 6765 – R&D Credit.
  • Already filed your 2016 business income tax return? File an amended 2016 return, by December 31, 2017, accompanied by a completed Form 6765 – R&D Credit.

How do you claim the R&D payroll tax credit? The key is filling out Form 8974, Qualified Small Business Payroll Tax R&D Credit, and attaching it to your payroll tax return on a quarterly basis.


Based in WithumSmith+Brown’s New York office, Kevin McNulty is a Principal with a focus on Research and Development (“R&D”) Tax Credit work. He joined Withum in August of 2016 after spending several years at a Big 4 firm. With over 15 years of experience in R&D Tax Credits, Kevin works across diverse industries. He devotes the majority of his time to performing, managing and defending R&D tax credit studies and has worked with researchers, scientists, engineers and software developers in all industries. McNulty can be reached at T (212) 829 3236 kmcnulty@withum.com

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