United States

IRS releases draft forms for R&D credit payroll tax offset

Three draft forms have been released for claiming the new credit


The IRS recently released drafts of three forms necessary for claiming the new small business payroll tax credit portion of the amended and permanently extended research and development (R&D) credit. In December 2015, Congress passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The PATH Act permanently extended the R&D credit and also provided a payroll tax offset for qualified small business. For previous articles on these provisions see, Generous tax extenders package enacted, with many provisions made permanent and  Offsetting small business payroll tax and AMT with R&D credits.

The payroll tax offset applies to qualified businesses that have less than $5 million in gross receipts for the current taxable year and that have no gross receipts for any taxable year prior to the five-taxable-year period ending with the current taxable year. The credit is elected annually and can offset the employer portion of OASDI (social security tax) by up to $250,000 each year. For purposes of the credit, qualified small businesses include corporations (including S corporations), partnerships or individuals, but does not include organizations exempt from tax under section 501.

The draft of the 2016 Form 6765, Credit for Increasing Research Activities, includes a new Section D, Qualified Small Business Payroll Tax Election and Payroll Tax Credit, for taxpayers to use in order to elect and compute the small business payroll tax credit. Those amounts then flow through to the new 2017 (draft) Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This form is used to determine the amount of the credit allowable for the applicable period and is filed in conjunction with Form 941. The draft of the 2017 Form 941, Employer’s Quarterly Federal Tax Return, adds new lines for imputing the credit amount from Form 8974.

Taxpayers and tax professionals must continue using the existing version of Form 6765. The new forms must be finalized before they can be filed. The new provisions of the R&D credit that provide for the small business payroll tax credit are complex and taxpayers should consult their tax advisors to ensure that the small business credit applies to their facts.


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