Guidance Issued on Option for Small Business to Apply Research Tax Credit to Payroll Taxes

The Internal Revenue Service recently issued guidance related to options for qualified small businesses claiming the research tax credit. Prior to 2016, the research tax credit could only be used against income tax liability. The Protecting Americans From Tax Hikes (PATH) Act provided that qualified small businesses may elect to apply the tax credit against payroll tax liability.

Qualified businesses have less than $5,000,000 in gross receipts and did not have gross receipts prior to 2012. Such a qualified business can apply up to $250,000 of the research tax credit against the payroll tax liability.

The election is made on Form 6765, which is included with the businesses income tax return, and Form 8974, which is included with the business payroll tax return. For 2016, if a qualified business has already filed its tax return and failed to timely make the election, an amended return may be filed making the election. Such amended return must be filed before December 31, 2017.

For additional information, see Internal Revenue Service, Notice 2017-23, available at

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If My Business Is Located in One State and I Have Employees in Another State, What Are the Employment Tax Issues

A Tax FAQ with Mary E. Vandenack.

When you have employees in another state, you have to determine whether you have to pay and withhold income taxes on your employees in the other state. Many of the states have gotten very aggressive about charging for payroll taxes and claiming that if you have an employee in the state for even one day, that that employee is subject to employment taxes in that state. So it’s really important to get to know those rules so you can stay in compliance. Some states also have some specialized employment tax rules if you are sending an employee into another state for even a day. You are going to want to take a look at those rules.

© 2014 Parsonage Vandenack Williams LLC

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