The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) made the federal Research and Development (R&D) tax credit permanent. This tax credit incentivizes companies to invest in qualified innovations and improvements. Qualified small businesses and start-ups could be eligible to apply R&D credits of up to $250,000 against the employer portion of the Social Security payroll tax liability.
ADP TotalSource® can help you apply this tax credit as an offset to your payroll taxes on its quarterly Form 941 payroll tax filing.
What do I need to do?
First, determine your eligibility. Discuss your eligibility with your tax advisor. ADP TotalSource cannot determine whether you are eligible for this credit.
Second, file Form 6765. As a qualified small business, you must first claim the R&D Tax Credit by including a completed Form 6765 with your annual income tax return filed with the Internal Revenue Service (IRS). A qualified small business can further elect to take all or a portion (up to $250,000 maximum) of its tax credit as a payroll tax offset by completing Part D of Form 6765.
If you elect to take the R&D Tax Credit as a payroll tax offset, please complete the ADP R&D Tax Credit Election Form and include a copy of the original Form 6765 filed with the IRS in order for ADP TotalSource to process the payroll tax offset on future Form 941 quarterly filings.
Here are the Form 6765 and the R&D Tax Credit Election Forms.
Third, see your credit offset on your payroll invoice: A credit will be processed and included on your payroll invoice once the payroll tax offset is applied by the IRS to the Form 941 quarterly filing.
Maximum Tax Credit Limits
The maximum amount that can be processed each quarter is the lesser of: (i) the amount included on Line 44 of Form 6765 that has not yet been applied against payroll taxes, or (ii) your share of the employer portion of social security tax reported for the applicable quarter. ADP TotalSource will continue to process the payroll tax offset for each Form 941 quarterly filing that includes wages paid to your worksite employees until the total amount claimed on line 44 of Form 6765 has been applied.
Please contact you HR Business Partner for more information.