As tax deadlines approach, many businesses find themselves rushing to file their returns. If you’ve only just discovered the federal Research and Development (R&D) tax credit, don’t panic: you may still have options to claim it by filing an extension or amending a prior return.

Understanding Your Options for the R&D Tax Credit

To take advantage of the federal R&D tax credit against your payroll tax liability, it’s ideal to claim it on your original income tax return. This is why extensions can be particularly useful for startups. However, if you’ve missed that opportunity, you might still be able to apply the credit toward your income tax liability by amending your return. Additionally, a ‘lookback’ review allows businesses to claim up to three years of previously unclaimed R&D tax credits. Even if your tax deadline has come and gone, there are still ways to benefit from this incentive.

When and How to File a Tax Extension

If you need extra time, your tax extension must be filed by your original deadline. Depending on your business structure, this is typically in mid-March or mid-April.

If you’ve already submitted your return but the deadline hasn’t passed yet, you may have the option to file a superseding return. This essentially replaces or “undoes” your initial filing, giving you a second chance to include the necessary documentation for the R&D tax credit.

If the deadline has passed, your next best option is filing an amended return, which may require additional paperwork to support your claim.

The Process of Filing an Extension

Filing for an extension is a standard practice that many businesses utilize. Speak with your CPA or tax advisor to determine if it’s the right move for you. If you decide to proceed, the process is straightforward:

• Most businesses file IRS Form 7004 to request an extension for their income tax return.
• For flow-through entities, individual shareholders or partners may also need to extend their personal returns.

Why the R&D Tax Credit Is Worth Pursuing

The R&D tax credit can be a valuable financial boost, so don’t let tax deadlines stop you from securing the credits your business deserves.Working with TriNet Clarus R+D can make the process easier, ensuring that you claim the maximum benefit available to your company.

California’s R&D Tax Credit offers substantial financial incentives to businesses that invest in research and development activities. Designed to encourage innovation and economic growth, the credit can significantly reduce your state tax liability. Here’s a comprehensive guide to understanding and claiming this benefit. 

What Is the California R&D Tax Credit? 

The California R&D Tax Credit allows businesses to offset a portion of their state income or franchise tax liability using a credit based on their California qualified research expenses (QREs). This credit is closely aligned with the federal R&D Tax Credit but includes several unique state-specific provisions.

Who Qualifies for the California R&D Tax Credit? 

Your business may qualify for the California R&D Tax Credit if it: 

• Engages in R&D activities that meet the federal definition under Section 41 of the Internal Revenue Code. 
• Incurs QREs within California. These expenses typically include employee wages, supplies, and contract research costs directly related to qualified research activities. 
• Aims to develop or improve products, processes, software, or inventions. 

Both large and small businesses across various industries, including technology, manufacturing, consumer products, and biotechnology, can take advantage of this credit. 

How to Calculate the Credit 

• When using the regular method of calculation, California’s R&D credit closely aligns with the federal credit, applying a fixed base percentage determined from historical gross receipts and R&D spend.   
• However, one difference is that California’s definition of “gross receipts” is different than the federal definition. California defines gross receipts as the sale of real, tangible, or intangible property held for sale to customers and delivered to a purchaser within California. This limited definition means receipts related to license payments are generally excluded from the R&D tax credit calculation.  
• The state R&D credit in California is generally equal to 15% of qualified expenses that exceed a base amount. Businesses claim this state credit on Form FTB 3523 with their business return.  

In the event that the state credit exceeds tax liability or can otherwise not fully be utilized, unused credits can be carried forward indefinitely. 

Applying for the California R&D Tax Credit 

1. Determine Eligibility: Ensure your R&D activities and expenses meet both federal and California-specific requirements. 
2. Calculate QREs: Compile detailed records of your qualified research expenses, such as payroll, supply costs, and contract research fees. 
3. Claim the Credit on Tax Return: Use California’s Form 3523, “Research Credit,” to claim the R&D tax credit when filing your state tax return.  
4. Carry Forward Unused Credits: If your business cannot use the full credit in the current tax year, California allows unused credits to be carried forward indefinitely. 

Key Differences Between California and Federal R&D Credits 

• No Alternative Simplified Credit (ASC): Unlike the federal credit, California does not offer an ASC calculation method, but does provide an alternative incremental method.  The election to use this method is a permanent election and requires approval from the California Franchise Tax Board to be revoked for future years. 
• Higher Basic Research Credit Rate: California’s rate of 24% for university research is higher than the federal rate. 
• No Refundable Credit: The California R&D Tax Credit is nonrefundable, meaning it can only offset state tax liability. 

Tips for Maximizing the Credit 

• Coordinate with Federal Credits: By aligning your California claim with your federal R&D Tax Credit, you can maximize savings across both levels. 
• Maintain Substantial Documentation: Keep detailed records of your R&D activities and expenses, including time-tracking systems, project descriptions, and financial data. 
• Work with Experts: Partnering with R&D tax credit professionals or CPAs who specialize in state credits can help ensure compliance and maximize your claim. 

The California R&D Tax Credit provides an excellent opportunity for businesses to reduce their tax burden while investing in innovation. By understanding the program’s requirements and taking the right steps to apply, you can unlock significant financial benefits. Don’t miss out on this opportunity to reinvest in your business and drive growth—start exploring how you can claim the California R&D Tax Credit today! 

The 2024 IRS Form 6765 and accompanying instructions were published to the IRS website on February 19, 2025.  The new form provides for more detailed reporting when claiming the federal Research and Development Tax Credit.   

The additional requirements for the new Form 6765 include responses to some general questions about the business as well as the portion of qualifying payroll expense attributable to work performed by officers of the company. The new requirements also request an attachment listing details for all members of a controlled group, if applicable.  Controlled group details include entity names, FEINs, principal business activity codes, qualifying research expenses, and allocated portion of the group credit by member.    

While the new version of Form 6765 is generally applicable for businesses who are claiming the R&D income tax credit on their 2024 income tax returns, Section G (Business Component Information) remains optional until the 2025 tax year to allow businesses time to adjust to the new format. Beginning with the 2025 tax year, information in Section G will be required to be completed unless the business is a qualifying small business defined in IRC 41(h)(1) and (2), or total QREs determined at the control group level are less than $1.5 million and gross receipts are less than $50 million.   

The IRS has indicated that these new changes are part of an effort to maintain compliance and ensure the legitimacy of claims.  

Georgia offers a robust R&D Tax Credit designed to encourage innovation and support businesses investing in research and development activities. This credit can help offset both income tax and payroll withholding, making it particularly valuable for startups and established companies alike. Here’s what you need to know to claim this benefit. 

What is the Georgia R&D Tax Credit? 

The Georgia R&D Tax Credit provides a financial incentive for companies conducting qualifying research activities within the state. Businesses can use this credit to offset their Georgia corporate income tax liability. For businesses with little to no tax liability, unused credits may also be applied to offset Georgia payroll withholding taxes, providing an additional layer of flexibility. 

Who Qualifies for the Georgia R&D Tax Credit? 

To qualify for the Georgia R&D Tax Credit, your business must: 

• Engage in qualified research activities (QRAs) that meet the federal definition under Section 41 of the Internal Revenue Code. 
• Conduct these activities within Georgia. 
• Incur qualified research expenses (QREs), including employee wages, supplies used in research, and contract research expenses. 

This credit is available to companies across various industries, including manufacturing, technology, and life sciences. 

How to Calculate the Georgia R&D Tax Credit 

The Georgia R&D Tax Credit is calculated by a single calculation method, as follows: 

• Base Amount Calculation: The base amount is determined by multiplying a ratio of the prior 3 years of Georgia research expenses and taxable income by taxable net income.
• Credit Value: The credit is generally equal to 10% of QREs that exceed the base amount. 

Applying for the Credit 

1. Determine Eligibility: Ensure your R&D activities meet both federal and state requirements. 
2. Calculate QREs: Gather detailed records of your R&D expenses, including wages, supply costs, and third-party contractor fees. 
3. Complete Form IT-RD: File Georgia Form IT-RD, “Research and Development Tax Credit,” with your state income tax return.  
4. Apply Credits Against Payroll Taxes: For businesses unable to use the full credit against income tax, excess credits may be applied against Georgia payroll withholding tax liability. To do so, submit Form IT-WH, “Withholding Tax Credit Election.” 

Key Features of the Georgia R&D Tax Credit 

• Benefit for Startups: Startups with limited tax liability can benefit by applying the credit to offset future payroll withholding taxes. 
• Alignment with Federal Standards: The state’s definition of qualified research activities and expenses closely mirrors federal standards, simplifying compliance. 
• Carry Forward: Unused credits may be carried forward for up to 10 years. 

Tips for Maximizing the Credit 

• Leverage Both Federal and State Credits: Coordinate your Georgia claim with your federal R&D Tax Credit to maximize savings. 
• Maintain Detailed Documentation: Accurate and comprehensive records are critical for supporting your claim. This includes timesheets, project notes, financial data, and contractor agreements. 
• Consult R&D Tax Credit Experts: Working with tax professionals who specialize in R&D credits can help ensure compliance and optimize your claim. 

The Georgia R&D Tax Credit is a powerful incentive for businesses investing in innovation. Whether you’re a growing startup or a well-established company, this credit can provide substantial financial relief while fostering technological advancement. Don’t leave these savings on the table—start exploring your eligibility and claiming the Georgia R&D Tax Credit today! 

Research and Development (R&D) tax credits offer significant incentives for businesses investing in innovation. Along with the federal credit, many states offer the opportunity to claim an additional state credit for R&D work done in that state. Pennsylvania is one such state, and there are a couple of things that businesses should consider when looking to claim the state credit there: 

What Is the Pennsylvania State R&D Tax Credit? 

The Pennsylvania R&D Tax Credit incentivizes businesses to increase spending on R&D activities within the state. It allows companies to claim a percentage of their qualified research expenses (QREs) as a credit against their state tax liability. Credits are available to business entities conducting eligible research activities in Pennsylvania.  

Who Qualifies for the Pennsylvania State R&D Tax Credit? 

To qualify, your business must: 

• Engage in R&D activities that meet the federal definition under Section 41 of the Internal Revenue Code. 
• Incur QREs, which typically include wages for employees conducting research, supplies used in the research process, and contract research expenses.
• Conduct the R&D activities within Pennsylvania. 

Both established companies and startups can apply for the credit.  

How to Calculate the Pennsylvania State R&D Tax Credit 

• The calculation method for the state credit uses a base amount of either your prior years’ average Pennsylvania R&D expenditures, or 50% of the current year’s average Pennsylvania R&D expenditures, whichever is greater. Additionally, you must have at least 2 years of R&D expenditures.  
• The state credit itself is tentatively calculated as 10% of the qualified expenses that exceed the base amount for a large business, and 20% of the excess for a small business with less than $5 million in assets at the start or end of the tax year. 

Applying for the Credit 

1. File the Application: Submit the R&D Tax Credit application to the Pennsylvania Department of Revenue through the myPennsylvania Tax Hub between August 1 and December 1 of the year following the tax year in which the QREs were incurred. 
2. Provide Supporting Documentation: Include detailed records of your R&D expenses, such as payroll data, supply costs, and contractor invoices. 
3. Approval Notification: The state notifies applicants of approved credits in May of the following year.  
4. Sell or Assign Credits (if applicable): Pennsylvania allows businesses with unused R&D tax credits to sell or assign them to other taxpayers if the credit amount exceeds the business’s tax liability for that year. This feature can be particularly advantageous for startups with limited tax liability. Unused credits can also be carried forward for up to 15 years.  

Tips for Maximizing the Credit 

• Leverage Federal and State Credits: Pennsylvania’s R&D credit complements the federal R&D Tax Credit, allowing you to optimize savings at both levels.
• Keep Comprehensive Records: Maintain documentation of your R&D activities and expenses to support your claim, making it easier when it comes time to complete your study.
• Seek Professional Assistance: Partnering with R&D tax credit experts can help ensure accurate calculations and compliance with state requirements. 

Claim your credit today! 

The Pennsylvania R&D Tax Credit is a powerful tool for fostering innovation and offsetting the costs of research and development. By understanding the eligibility criteria and application process, your business can take full advantage of this opportunity to reduce state tax liability and reinvest in growth. Don’t leave money on the table—start exploring how your business can claim this valuable credit today! 

Michigan businesses now have a major opportunity to get rewarded for their innovative work, thanks to the state R&D Tax Credit that was signed into law on January 13th, 2025. With this law, Michigan joins the long list of U.S. states that offer a state version of the R&D tax credit in addition to the federal credit.

$100 million in R&D tax credits will be available for eligible expenses effective January 1st, 2025, allowing companies to claim expenses incurred during the previous year. Notably, 25% of these funds are specifically set aside for businesses with 250 or fewer employees.

Eligible businesses can claim a credit of 3% of their qualifying R&D expenses in a given tax year up to the law’s base amount. For companies with over 250 employees, any expenses exceeding the base amount can qualify for a credit of 10%, capped at $2 million. Smaller businesses, however, can claim 15% of their expenses over the base amount, with a maximum credit of $250,000.

Additionally, businesses collaborating with a Michigan research university on R&D projects can claim an extra 5% credit on those expenses over the base amount, up to $200,000.

To access these credits, eligible businesses must submit a tentative claim to the Michigan Treasury by March 15 following the end of the tax year.

Don’t miss out on this game-changing opportunity to secure additional funding for your business!

Since its inception, businesses claiming the R&D tax credit have followed a relatively straightforward process: provide the calculation of the credit on Form 6765 (Credit for Increasing Research Activities) and include that form with their annual tax return. However, the IRS has proposed new legislation that could add additional complexity to the information required on Form 6765. Soon, companies may need to provide additional substantiation to support their R&D tax credit claims, potentially adding complexity and time to an already detailed procedure. 

The IRS initially proposed changes to Form 6765 in September 2023, but the most recent proposed revisions were released in June 2024. 

If your business is claiming—or plans to claim—the R&D tax credit, staying ahead of these changes is crucial. Leveraging specialized software can help ensure compliance with any updated requirements, while also simplifying the process from start to finish. 

What Does Substantiation Mean for the R&D Tax Credit? 

Substantiation involves providing documentation that clearly demonstrates your business activities qualify under the IRS’s criteria for the R&D tax credit. This documentation typically includes: 

• Detailed descriptions of research activities and how they meet the IRS’s four-part test. 

• Project-level tracking that connects qualifying expenses (e.g., wages, supplies, and contractor costs) to specific R&D activities. 

• Thorough records to prove that qualifying activities occurred during the tax year for which the credit is claimed. 

The IRS’s proposed changes aim to tighten the rules around these requirements, requiring businesses to submit clear and comprehensive evidence when claiming the credit. 

How Software Simplifies Substantiation 

Specialized R&D tax credit software offers tools to manage and document your claim, ensuring compliance with stricter IRS standards. Here’s how the TriNet Clarus R+D Platform can help: 

1. Centralized Documentation 

Traditional methods of claiming the R&D tax credit involve loosely passing around documents and sensitive information through email and physical copies. Software platforms allow you to consolidate all required records in one place, reducing the number of times that documents are forwarded amongst different stakeholders. More importantly, working with a provider who utilizes a technology-based platform helps give you peace of mind that your information is secure.  

The TriNet Clarus R+D platform enables users to log and organize activities, expenses, and supporting documents by project. The platform is SOC-2 compliant, meaning that it meets a set of rigorous security and privacy standards.  

2. AI-Powered Assistance 

Many qualified companies miss out on claiming the R&D tax credit because they are overwhelmed by the detailed project descriptions required to meet the IRS’ Four-Part Test. Not only will a software platform walk you step-by-step through the process of filling out each piece of required information, but AI-powered tools can help suggest answers based on a business’s industry and on details that they provided earlier in the application. AI tools can also help suggest other qualified projects that the business may be performing, helping to maximize final credit value and avoid leaving money on the table. These examples provide a solid foundation for creating customized, IRS-compliant descriptions of your R&D activities.  

Additionally, advanced input-checking features and real-time validation help to ensure your documentation meets IRS standards before submission. By flagging unqualified activities or ambiguous terms, the platform helps businesses refine their claims proactively, minimizing the risk of rejected credits upon audit.  

Our platform also integrates AI tools to craft example responses, saving time and reducing the risk of errors throughout the study.  

3. Automated Workflows 

One of the key components of an R&D study is the nexus that is created between qualifying projects and the expenses that are related to each project. The Clarus platform utilizes fit-for-purpose workflows to guide users through the process of documenting R&D projects and connecting them to eligible expenses. By offering tailored suggestions for activities specific to your industry, the software helps ensure your claims align with IRS requirements. 

5. Secure Integration with Payroll Providers 

Traditional methods also required the manual inputting of information such as wages and contractor expenses. Some technology platforms allow for the seamless integration with major payroll providers, meaning that users can minimize the amount of time it takes for them to complete their R&D study while still including all qualified wages to maximize the full value of the credit.  

Future-Proof Your R&D Tax Credit Claims 

While proposed substantiation requirements may feel daunting, they also present an opportunity to revisit your current processes and look for a solution that will grow with you and your business. By working with a specialized provider now, businesses will be better able to adapt to any future legislative changes, ensuring compliance and maximizing their credit value. 

The TriNet Clarus R+D platform provides everything you need to navigate this new landscape with confidence. By centralizing documentation, automating workflows, and offering cutting-edge AI tools, it simplifies the claiming process and ensures your business gets the full value of its R&D tax credit. 

Now is the time to invest in the right tools to protect and enhance your claims. With TriNet Clarus R+D, you can prepare for the future of R&D tax credits—seamlessly, securely, and successfully. 

When it comes to the federal research and development (R&D) tax credit, did you know there are two ways to utilize the incentive? Depending on a few factors, businesses may claim their federal R&D tax credits against either their payroll tax liability or their income tax liability. While only one can be claimed at any given time, smaller or newer companies frequently utilize the payroll tax options but may eventually outgrow it and instead prefer the income tax option. With the passage of the PATH Act in 2015, TriNet Clarus R+D was founded to help early-stage companies more efficiently claim R&D credits against their payroll tax liability. Follow along as we review the history of the incentive and explore the differences between each option.

What is the Federal R&D Tax Credit?

The incentive was originally introduced as an income tax credit in 1981 to encourage innovation and economic growth in the US. Since innovation is expensive, the government created this tax credit to offset some of that cost. This was great for companies with an income tax liability; however, due to the way the tax credit was originally structured, it excluded many companies that innovate, namely startups. Because startups tend to spend more money than they bring in, and therefore lack profit to utilize an income tax credit, the federal R&D tax credit in its original form offset a tax they weren’t even paying. The passage of the PATH Act in 2015 made the federal R&D tax credit permanent and introduced a payroll tax offset so startups could finally use the incentive against taxes they actually pay – their employer portion of FICA taxes.

Claiming Federal R&D Tax Credit Using Payroll Tax Option

To utilize the federal R&D tax credit against your payroll tax liability, generally, the taxpayer must be a qualifying small business meeting the “5-5-5 Rule.” This means a company must:

• Have less than $5 million in gross receipts for the current tax year.
• Be within their first five years of receiving any gross receipts.
• Can only claim the payroll tax liability offset up to five times on an original, on-time business return.

For purposes of the first five years requirement of gross receipts to qualify for the payroll tax credit, the IRS definition of gross receipts is actually broader than just the sales that are listed on the tax return. It also includes any interest, rent, or royalties you’ve received. So, some businesses start their five-year clock earlier than they realize.

The maximum federal R&D payroll tax credit had been $250k since 2015; however, the Inflation Reduction Act increased the maximum limit to $500k, starting with tax years that began after December 31, 2022. The law also allowed businesses to use the tax credit against both the Medicare and Social Security portions of their payroll tax liability. Once the payroll tax credit is claimed, there is no expiration or specified carry forward period.

Claiming the Federal R&D Tax Credit Using Income Tax Option

To utilize the federal R&D tax credit against your income tax liability, there are no restrictions to gross receipts or number of years. You can claim federal R&D tax credits on amended returns. There is no limit to how large your claim can be, and you can claim it every year that you are eligible. When claiming the tax credit against your income tax liability, you are simply reducing your business’s income tax liability. When you go to pay your income taxes for that year, they are reduced by the amount of the tax credit. If your tax credit amount is larger than your income tax liability, you can carry it forward for up to 20 years.

If this all seems difficult to navigate, that’s where TriNet Clarus R+D can offer an end-to-end solution. Pairing world-class R&D tax credit software with a team of tax experts and CPAs will help support compliance while simplifying the process. To learn more, schedule a free consultation today.

© 2024 TriNet Group, Inc. All rights reserved. TriNet Clarus R+D does not provide legal, tax or accounting advice. The information herein and the opinions expressed may not apply to your company or scenario, so you should consult with your own advisors on how best to proceed.

This post may contain hyperlinks to websites operated by parties other than TriNet Clarus R+D. Such hyperlinks are provided for reference only. TriNet Clarus R+D does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks in this article does not necessarily imply any endorsement of the material on such websites or association with their operators.

As an innovative business leader, you may already be aware of federal research and development (R&D) tax credits, but you might not realize most U.S. states also offer their own R&D tax credits. It’s important to understand the difference between state and federal R&D tax credits, who qualifies for each type, and which states have unique rules and regulations. This article will dive into the extra incentives provided by state R&D tax credits, as well as any additional considerations your business may need to keep in mind.

With two-thirds of U.S. states offering some sort of state R&D tax credit, there’s a good chance your business may be able to take advantage of them if you are also eligible for the federal R&D tax credit. Just like at the federal level, these tax credits are for businesses who spend money on eligible R&D expenses in a state. In general, states follow the same qualification guidelines as the federal R&D tax credit, but details like the calculation method, definition of certain terms and regulations, and carryover periods can vary. Although it may seem tough to navigate due to the many variables, the experts at TriNet Clarus R+D can assist you in evaluating eligibility within those states along with your federal R&D study.

In most states, income tax is imposed on the net taxable income of a business allocated to the state. The state’s taxable income is determined using Federal taxable income as a starting point, then the portion of the business that is attributable to activity in the state or apportionment is calculated.

But how do you know if your business’s activities are “connected” to a specific state, or to multiple states? When it comes to determining whether you may be eligible for an R&D tax credit to help offset your tax liability in certain states, there are several things to look at:

• Nexus: the amount of connection a business has to a state. States can use different standards for determining that connection.
• Physical presence standard: an out of state business must have offices, employees, agents, or property in state to establish income tax
• Economic presence standard: an out of state business must earn income from economic activity in the state to establish income tax
• Apportionment factor: determined based on the portion of sales, payroll, and property in the state. Also determines the amount of net income that can be subject to net income tax by the state.

As mentioned, state R&D tax credits generally follow the same or similar qualification criteria outlined for the federal R&D tax credit. Section 41 of the U.S. tax code says that qualifying work for the R&D tax credit must meet the requirements in the four-part test:

• Permitted Purpose: the purpose of a qualifying project must be related to creating a new or improving an existing business component.
• Technological in Nature: work needs to rely on principles of physical, biological, or computer science or engineering.
• Elimination of Uncertainty: when work began on a qualifying project, there would have been uncertainty related to your capability to create the product or improvement, the methodology you would use, or the correct product design.
• Process of Experimentation: the project must involve a process by which you tested alternatives and resolved the uncertainty above.

In the instructions for most state R&D tax credits will typically include a reference to requirements in Section 41 of the Internal Revenue Code, but you may also see some exceptions or terms that are defined differently for purposes of the state tax credit.

Let’s take a closer look at a few states that have unique rules and typically have many companies claiming the state R&D tax credit:

California

When using the regular method of calculation, California’s R&D tax credit closely aligns with the federal R&D tax credit applying a fixed base percentage determined from historical gross receipts and R&D spend. The tax credit amount is determined considering gross receipts and qualified research expenses (QREs) related to R&D work done in California. However, California defines gross receipts as the sale of real, tangible, or intangible property held for sale to customers and delivered to a purchaser within California. This limited definition means receipts related to license payments are generally excluded from the R&D tax credit calculation.

The state R&D tax credit in California is generally equal to 15% of qualified expenses that exceed a base amount. Businesses claim this state R&D tax credit on Form FTB 3523 with their business return. The tax credit is non-refundable and permitted to be used to reduce tax liability. If the state R&D tax credit exceeds tax liability or can otherwise not fully be utilized, unused tax credits can be carried forward indefinitely.

Taxpayers can also elect to use the alternative incremental tax credit method for their California state R&D tax credits. Using this method, you calculate your R&D expenses from the past 3 years, find the average, and use 50% of that average as your base amount. You then subtract the base amount from your current year’s R&D expenses and add a 15% tax credit value to the difference.

Taxpayers are not permitted to select this method if they have no California gross receipts. Additionally, taxpayers who elect to use this method must continue to use it for each year moving forward, unless they receive permission from the California Tax Board to switch. Use of the California Alternative Incremental Credit is a permanent election.

Georgia

Unlike California, Georgia offers only one calculation method. Using this method, the base amount is determined by multiplying a ratio of the past three years of Georgia research expenses and taxable income by taxable net income. The tax credit is generally equal to 10% of QREs that exceed the base amount. Taxpayers can claim the tax credit on GA Form IT-RD with their business return. The tax credit is nonrefundable and is used to reduce up to 50% of a business’s income tax liability. Excess tax credits can be used to offset Georgia state payroll withholding tax, which is a great option for businesses with little to no income tax liability that not all other states offer. Claiming the withholding benefit must be done by filing GA Form IT-WH within 30 days after filing a timely Georgia income tax return. Similar to California, unused tax credits can be carried forward, but only for up to 10 years.

Pennsylvania

In Pennsylvania, businesses can submit their applications for the tax credit via the state portal between August 1st and December 1st in the year following the relevant tax credit year. The state R&D tax credit is allowed to be sold for cash if the tax credit exceeds the tax liability for the year, and unused tax credits can be carried forward for up to 15 years.

The calculation method for the Pennsylvania state R&D tax credit uses a base amount of either prior years’ average state R&D expenditures or 50% of the current year’s state R&D expenditures, whichever is greater. Additionally, a business must have at least two years of R&D expenditures. In Pennsylvania, the state R&D tax credit is tentatively calculated as 10% of qualified expenses that exceed the base amount.

The state determines a set total amount of funding for all tax credits claimed for a particular year. Approved tax credits are pooled and the full amount of funding for a year is allocated to all approved applications submitted before the deadline. Final tax credits are communicated via award letters that are mailed to taxpayers beginning on May 1st of the year following application. All applications for the Pennsylvania state R&D tax credit require detailed information about the business, such as R&D spend by location, relevant project descriptions and evidence of meeting the four-part test, breakdowns of contractor spend, and business ownership information. It’s also important to note that the state frequently requests additional information and will not approve tax credits without receiving.

At TriNet Clarus R+D, our team of experts can help evaluate whether the states where you pay taxes offer R&D tax credits that may be eligible to offset your tax liabilities. We can also provide guidance on effective ways to claim these tax credits, helping you maximize your incentives. Get started today by scheduling a free consultation.

© 2024 TriNet Group, Inc. All rights reserved. TriNet Clarus R+D does not provide legal, tax or accounting advice. The information herein and the opinions expressed may not apply to your company or scenario, so you should consult with your own advisors on how best to proceed. This post may contain hyperlinks to websites operated by parties other than TriNet Clarus R+D. Such hyperlinks are provided for reference only. TriNet Clarus R+D does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on our website does not necessarily imply any endorsement of the material on such websites or association with their operators.

Early spring is a busy time of year for many businesses who are looking to meet their income tax filing deadlines. If you’re only just learning about the federal research and development (R&D) tax credit, don’t worry, you may still be able to file a claim for the tax credit by filing an extension or by amending your income tax return.

To apply your federal R&D tax credit against your payroll tax liability, you ideally should claim it on your original income tax return — which is why the option to extend is so important for startups. However, companies that are unable to apply the tax credit against their payroll tax liability may be able to apply their R&D tax credit against their income tax liability by amending their income tax return – and can even consider performing a ‘lookback’ to capture up to three years of unclaimed tax credits. Whichever option you may be eligible for, you don’t have to miss out just because your tax filing deadline may have already passed.

Keep reading for some tips on how to approach claiming the R&D tax credit if the tax deadline is approaching or have already passed.

When to file an income tax extension

Your income tax extension needs to be filed by your original income tax filing date. Depending on your type of business entity, your tax filing due date is either mid-March or mid-April.

If you have already filed your taxes but the deadline has not yet passed, instead of filing an extension, you can consider filing what’s called a superseding return. This essentially “undoes” the filing of your original income tax return, allowing you to re-file and include the necessary documentation for the federal R&D tax credit.

If the deadline has already passed, filing an amended income tax return is your only option and you may have to submit additional information.

Filing an income tax extension

Filing an extension is actually very common! Talk with your CPA or tax preparer to ensure it’s the best decision for your business. Once you decide to file an extension, the process is straightforward.

For most businesses, your tax preparer will file IRS Form 7004 to extend your income tax return deadline. For flow-through businesses extending their income tax returns, shareholders or partners may also need to extend their individual tax returns.

Is the federal R&D tax credit worth it?

Yes! If you’re considering claiming the federal R&D tax credit, working with TriNet Clarus R+D can help streamline the process and help you maximize your efforts. We’re dedicated to helping your business and providing a peace of mind. Don’t miss out on the opportunity to recoup valuable resources for your innovative work—reach out to TriNet Clarus R+D today to get support in claiming the federal R&D tax credit with confidence.

© 2024 TriNet Group, Inc. All rights reserved. TriNet Clarus R+D does not provide legal, tax or accounting advice. The information herein and the opinions expressed may not apply to your company or scenario, so you should consult with your own advisors on how best to proceed.

This post may contain hyperlinks to websites operated by parties other than TriNet Clarus R+D. Such hyperlinks are provided for reference only. TriNet Clarus R+D does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on our website does not necessarily imply any endorsement of the material on such websites or association with their operators.