IRS Offers One-Time Exception to Claim $250,000 Payroll Tax Credit, but Time is Running Out

The IRS has granted a one-time exception to the R&D payroll tax credit, giving tax filers until January 2, 2018, to amend their 2016 tax returns and claim it.

The documentation required by the IRS to claim the credit can take several weeks to prepare, so companies should take action soon to meet the upcoming deadline. Filing for the credit may require coordination between a company’s tax preparers and payroll providers or professional employer organizations (PEOs).

Who Qualifies?

The credit is a tremendous benefit to startups and other loss companies that incur payroll taxes but pay no federal income tax.

The new incentive is available to qualified small businesses starting with the 2016 tax year. Companies that have qualified research and payroll expenses can claim a benefit of up to $250,000 in payroll tax credits.

Requirements

  • Gross receipts for five years or less
  • Less than $5 million in gross receipts in the current year and for each subsequent year the credit is elected

How It Works

Based on information reported on a company’s federal income tax return, the benefit applies against payroll taxes in future quarters. The federal income tax return needs to be filed before any benefit can be realized and there may be some coordination required between a company’s various service providers.

Earlier this year, some payroll providers and PEOs may have been slow to support credit claims as they waited on further guidance from the IRS. This guidance has been issued and the majority of payroll providers and PEOs now support the credit.

We’re Here to Help

If you’d like to learn more about how your company could potentially benefit from the R&D payroll tax credit, contact your Moss Adams professional or email creditsandincentives@mossadams.com.