Part A · Startup-specific scheme
R&D Tax Credit — Payroll Tax Offset for Qualified Small Businesses (R&D Payroll Offset)
Internal Revenue Service (IRC §41(h))
Other
Prototype / PoCSeed / Early-StageGrowth / Scaling
The federal R&D tax credit (IRC Section 41) normally offsets income tax, which is useless to a company with no profit yet. Section 41(h) lets a "qualified small business" apply the credit against the employer share of payroll taxes instead, turning it into real, near-term cash.
Type of support
Other
Best suited for
Prototype / Early-Stage
Headline amount
Up to $2.5M over 5 years
How much
Up to $500K/year, $2.5M over 5 years
Source
Objectives
Make the R&D credit usable by pre-profit startups doing genuine technical R&D (new or improved products, processes, software, formulas, or techniques), rather than only benefiting established profitable companies.
Who can apply?
- Gross receipts under $5 million in the credit year.
- No gross receipts for any of the 5 tax years before the credit year (in practice, a company generally younger than 5 years with revenue under $5M).
- Must have qualified research expenses under the standard R&D credit rules (wages, supplies, and contract research tied to a process of experimentation).
What do you get?
- Up to $500,000 per year of R&D credit applied against employer payroll taxes.
- Up to $2.5 million total across 5 separate taxable years.
- Remaining credit beyond the payroll offset can still be carried forward against future income tax.
How to apply
Calculate the R&D credit on Form 6765 and elect the payroll tax offset portion on that form; the credit is then claimed against payroll tax deposits via Form 8974 with the company's Form 941.
Key links
Details as most recently confirmed against the official source linked above. Deadlines, amounts and windows change — verify on the official portal before applying.