On December 18, 2015, the Consolidated Appropriations Act, 2016 retroactively reinstated research credit for qualified research expenses paid or incurred in 2015, and made the credit permanent. The Law also made changes to allow an eligible small business to offset alternative minimum tax. Qualified small businesses may also elect to apply up to $250,000 of the credit against the employer portion of social security taxes.
Employers who wish to claim the credit must file form 6765 with the IRS to claim the credit and provide reporting of Research Expenditures which qualify for the credit.
Those who wish to claim the credit against the Employer Social Security Tax must file form 8974 to determine the amount which can be applied to Employment Taxes (Generally not to Exceed $250,000). The credit is then applied to the Employer Portion of Social Security Taxes Reporting on form 941.
The credit cannot be taken against employment taxes on a payroll by payroll basis since the credit cannot exceed amounts determined by completing form 8974 which is filed quarterly. As a result, Employers who claim this credit will receive refunds for amounts claimed to offset Employer Social Security Taxes reported on form 941. Form 940 WILL NOT be utilized for applying this credit.
IRS is currently developing form 8974 and is finalizing the filing process. Paylocity is currently developing a process to handle this credit for clients and will follow up with further alerts as the process is developed.
Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.