IRS Issues Interim Guidance for Making Payroll Tax Credit Election

IRS Issues Interim Guidance for Making Payroll Tax Credit Election

IRS Issues Interim Guidance for Making Payroll Tax Credit Election - Research & Development Tax Credit for Small Businesses/Startup Companies

The Research & Development (R&D) tax credit was made permanent in December 2015, allowing business to offset their federal tax liability. Under the same provision, Qualified Small Businesses/Startups are eligible to utilize the R&D credit to offset payroll taxes. While this is great news for small businesses and startups, there were items in the new rule that were unclear, and many companies were left with questions regarding the language. In April 2017, The IRS issued interim guidance for the payroll tax credit on the following:

- What is a “qualified small business”?
- What are “gross receipts”?
- When to make elections?

What is a “qualified small business”? The IRS has defined a qualified small business as having gross receipts of less than $5,000,000 for the taxable year and no gross receipts for any tax year preceding a 5-year window that includes the current tax year (see figure below). This is the same language that was released with the initial guidance, PATH Act 2015, and was not changed for the interim guidance.

What are “gross receipts ”? The PATH Act defined gross receipts as the “balance” of gross receipts: “gross receipts for any taxable year shall be reduced by returns and allowances made during such year.”

The interim guidance is expanding the definition of gross receipts to include total sales, interest, dividends, rents, royalties, and annuities. The inclusion of these additional categories could mean fewer companies are able to qualify as a small business.

When to make elections? The PATH Act originally stated that the election must be made on a timely filed return, and not on an amendment. The interim guidance says that you can amend your return to make the payroll tax election if you file the amendment on or before 12/31/17.

This is just interim guidance, as the IRS is accepting feedback and comments regarding the notice until July 17, 2017. While we are awaiting the final guidance, if you are a small business or startup company and have not yet made the election to use the Research and Development Tax Credit to offset your payroll tax, contact HIREtech today to see if this guidance could help save you some money! Call us at 844. HIREtec or email This email address is being protected from spambots. You need JavaScript enabled to view it.

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