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The Qualified Small Business R&D Payroll Tax Credit Provides up to $250,000 in Annual Savings for Startup Companies
- What is it? The Qualified Small Business (QSB) R&D Payroll Tax Credit is a tax incentive geared specifically for early-stage companies. The credit can be used to offset payroll tax, either instead of or in addition to income tax.
- What does it do? The QSB R&D Payroll Tax Credit reduces early-stage companies U.S. labor costs up to 6.2% (capped at $250,000). Now, eligible small businesses can take advantage of a new option enabling them to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability. Qualified companies may claim credits on 2018 federal income tax returns and apply these credits against OASDI payroll taxes in 2019. OASDI costs U.S. employers 6.2% of wages up to $8,239.80 per year per employee.
- Who qualifies? A “Qualified Small Business” is defined as any company with less than 5 years of revenues and less than $5MM in the current year of revenues with qualifying research activities and expenditures.
- What companies are the best candidates? Any early-stage company with employee wages that engage in research or technology development is a good candidate.
- When do companies need to act? Companies can take advantage of the incentive in the 2018 tax year (filed in calendar year 2019). However, QSB Credits must be claimed on an originally-filed federal income tax return. Additionally, the sooner the QSB credit is claimed, the sooner a company can begin realizing the savings.