Research and Development Tax Credit Expansion Act
Published on by Cheryl Ganim in Consulting, Tax Services
On July 22, 2019, a bill (the Research and Development Tax Credit Expansion Act) was introduced that would be effective for taxable years beginning after December 31, 2019 to expand refundability and increase simplification of the research credit for certain small businesses.
The Research and Experimentation (R&E) tax credit promotes innovation by encouraging businesses to invest in scientific research and the development of new technologies. Small businesses that qualify for the R&E credit can benefit from electing to offset their payroll tax liabilities in early years when the business does not have sufficient income tax liability to benefit from the R&E income tax credit. The proposed bill increases small businesses’ ability to use the R&E credit to reduce payroll tax liabilities.
The Research and Development Tax Credit Expansion Act would expand the refundable R&D tax credit by:
- Redefining Small Business to mean businesses with up to $10 million in receipts (currently $5 million in receipts)
- Doubling the refundable credit cap from $250,000 to $500,000
- Creating a special rule for businesses with their first year of Qualified Research Expenses – The credit rate is increased to 20% from 6% for the first year of R&E
- Creating a special rule for businesses for Other Years – The credit rate is increased from 6% to 10%
- Making the credit refundable against both Medicare and Unemployment Taxes
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