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Start-up companies and small businesses may be eligible to apply up to $1.25 million—or $250,000 each year for up to five years—of the federal R&D credit to offset the Federal Insurance Contributions Act (FICA) portion of their payroll taxes each year.
To be eligible, a company must meet two requirements:
The R&D credit is calculated on the federal income tax return as usual and may be applied against payroll taxes starting the quarter after the credit is claimed. For calendar-year taxpayers, the R&D credit can be applied against payroll taxes as early as July of the following year.
A business is a qualified small business if it meets the following three criteria
Although the law is intended to benefit small businesses, larger businesses can also benefit from the qualified small business criteria. For example, a significant percentage of life science companies have zero gross receipts for long periods of time until their drug receives FDA approval.