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What is the R&D tax credit?
The Federal Research and Development (R&D) Tax Credit is an income tax credit that may be claimed by companies who have expenditures related to the research and development of new processes and products, among other things. To be eligible to claim the credit, companies must meet a series of tests determined by the IRS.
In 2015, the Protecting Americans From Tax Hikes (PATH) Act was passed making R&D credits more accessible to small businesses.
Eligible small businesses with less than $5 million in gross receipts may be allowed to offset the credit against their FICA payroll tax liability.
What does this mean for Justworks customers?
For those small businesses eligible for payroll tax offset, Justworks is able to process the R&D payroll tax credit on behalf of our customers.
First, your company must claim the tax credit on its annual income tax return and file IRS Form 6765 with the return. Normally, this return would be filed in March or April unless you requested an extension. If your company would like to apply the credit against payroll taxes, you must indicate that election on Form 6765.
Any elected R&D payroll tax credit must be applied starting in the first calendar quarter that commences after you file your company’s entity income tax return. For example, if your company filed its tax return in March (part of calendar year Quarter One), credit must begin to apply to payroll tax liabilities in calendar year Quarter Two.
Employers who elect to apply R&D credits against their payroll taxes can get a refund of their eligible quarterly payroll taxes after the quarterly payroll tax returns are filed by Justworks.
Important note: Justworks does not provide tax advice and is not able to confirm the eligibility of your company to take the R&D credit.
Unsure if your business is eligible?
Justworks has partnered with Aprio to help small businesses connect with R&D tax experts so you can continue to grow with confidence. If you’re not sure where to begin or if you qualify for these credits, you can connect with our partner to get started.
Navigate to the “R&D Tax Credit” tab in Justworks for more information on R&D tax credits as well as links to request a no commitment 1-on-1 consultation with Aprio.
Your Next Steps to Taking the Credit
After confirming your eligibility with Aprio or your tax advisor, and file your company’s income tax return, complete the flow found on the right hand side of R&D Tax Credit page.
You will need a few pieces of information:
- Your company’s final filed income tax return
- Date the income tax return was filed
- Pages 1-2 of IRS Form 6765
- Contact information of the business/person who calculated the R&D tax credit (this may differ from your tax preparer)
You will be asked to answer a short series of questions to confirm your eligibility as well as to collect the key information from your business tax filing.
Upload your original IRS tax return and Form 6765 as PDFs by either dragging/dropping directly into the box or by selecting the files to upload. You will also need to enter your company’s R&D tax credit preparer’s contact information for Form 6765 in case Justworks needs to reach for additional information.
Note: If you have previously been receiving R&D tax credits from another source, Justworks will need your company’s completed Form 8974 from the most recent quarter. You can upload this in the Additional Documents section.
Once you have completed the flow, you will have an opportunity to review and/or edit any information before submitting. You will also be prompted to review and attest to the completeness and accuracy of the information you have provided as well as legal language regarding your company’s obligations with respect to the R&D tax credits.
After submitting, you’ll be redirected to the R&D Tax Credit page with a banner notifying you of success. Justworks will handle the rest! Our tax team will review your submissions, reach out if there's anything missing, and once it's good to go, we will include your R&D tax credit on the appropriate quarterly payroll tax return. Your credit will automatically roll forward to the next payroll quarter until all credits are fully refunded.
You can monitor your submission's progress next to each tax filing year on the right-hand side.
Collecting R&D Credits
After Justworks files our aggregate quarterly payroll tax return (IRS Form 941), we will pass through any applicable employer federal payroll tax savings to your company as a lump sum invoice credit.
An updated IRS Form 8974 with completed Lines 8 through 12 of Part 2 will be uploaded directly into your company’s Document Center in Justworks. This form provides information on how much of your tax credit was used in prior quarters and how much was used during the most recent reported quarter.
Disclaimer
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor. Justworks may receive a commission or other remuneration for products or services purchased through our preferred partners. All product descriptions are provided by preferred partners. Justworks makes no representations regarding the products or services provided by preferred partners or the suitability of such products or services for your company’s needs or any particular purpose.