R&D Credit: Payroll Tax Offset

New and expanding businesses need to be vigilant in seeking savings opportunities that can help fuel growth.

With research and development (R&D) tax credits, the innovation that drives your business could also help you access extra cash and offset your payroll tax liability—instead of income tax.

Navigating this complex process can require constant focus that can drain resources, especially for businesses still in their early stages. Determine if your business is eligible for credits and confidently navigate claims with guidance from our professionals.

Your Potential Savings Opportunities

Companies that develop new or improved products, processes, or software can:

  • Generate up to $250,000 annually until December 31, 2022, after that the Inflation Reduction Act increased the election to $500,000 in R&D credits to use against your payroll tax
  • Receive a credit equal to 10% of your eligible R&D spend
  • Generate payroll credits for up to five years—for up to $2.5 million in total credits

The additional $250,000 would be used to offset the employer-paid Medicare payroll tax of 1.45% each calendar quarter. The R&D payroll tax credit attributable to the employer-paid Medicare tax must not exceed the tax imposed. Any unused R&D credits will be carried forward and applied to a succeeding calendar quarter as a credit.

Credit Eligibility

Small, midsize, and early-stage businesses are more likely to be able to claim the credit.

Your company may be able to apply the R&D tax credit against payroll tax if the following are true:

  • You’ve never had gross receipts or only had them within the last five years
  • You have less than $5 million in gross receipts during the current year
  • You have qualifying research activities and expenditures that meet the IRC Sec. 41 four-part test
  • You have payroll-tax liability

Confidently Claim Your Credits

Each payroll provider or professional employer organization (PEO) may have a different process for handling the credits, and businesses are often left to assess these nuances on their own. Our professionals are highly experienced in navigating these distinctions and can even file claims on your behalf if needed.

Credits that aren’t properly documented also risk rejection by taxing authorities. Our detail-oriented team will help you identify and compile the documentation needed to advance through the credit process from start to finish.

How the Process Works

Expansive Early-Stage Expertise

From technology to life sciences companies and more, start-ups across industries look to our professionals for comprehensive accounting and consulting strategies to help guide them through launch—and to continue to grow throughout their business life cycle.


Complimentary Benefits Estimate

Discover how you can turn R&D expenses into tax savings by filling out our complimentary benefits estimate request form.

A Moss Adams professional will contact you with a preliminary estimate of the potential tax benefit to your organization.

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