Research and Development Tax Credit (Form 8974) Basics

This article explains what the R&D Tax Credit and Form 8974 are, best practices, and their application.

OVERVIEW

Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, allows qualified small businesses (typically start-up businesses - consult with a tax expert to see if your business qualifies) to claim a new payroll tax credit for qualified research and development (R&D) expenses up to $250,000*.

*2022 limit. Beginning on Jan 1, 2023, the limit will be raised to $500,000. 

PURPOSE OF FORM 8974

Use Form 8974 to determine the tax credit you can claim on Form 941, Employer’s Quarterly Federal Tax Return; Form 941-SS, Employer’s Quarterly Federal Tax Return (American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands); Form 941-PR

This payroll tax credit is a credit against the employer portion of social security tax from your employee's wages. 

WHO MUST FILE FORM 8974?

You must file Form 8974 and attach it to Form 941 if you elected to use a portion of the qualified small business payroll tax credit to increase research activities. The election is made on Form 6765, Credit for Increasing Research Activities.

If you haven’t elected to claim the payroll tax when you filed your income tax return, you can't file Form 8974 or claim the tax credit on Form 941.

CASE SUBMISSION INSTRUCTIONS

If you have any questions about this form, submit a case in the Help Community following these steps: 

Submitting a case

  1. Submit a case in the Help Community.

  2. Select Payroll > Tax > Next.

  3. Select Tax Services as the Product Feature and R&D Credit as the Function.

  1. Refer to the below for the required case information to place in the Description Field. 

For questions about new credits, include the following:

  • Which income tax return did you file that elected a qualified small business payroll tax credit on Form 6765, Credit for Increasing Research Activities?

    • The choices are Form 1040, Form 1065, Form 1120, Form 1120-F, Form 1120S

  • What tax period was covered by your income tax return?

    • This should either be a calendar year or tax year beginning and ending date.

  • When did you file your income tax return?

  • If the EIN is different than what is seen on Form 941, what EIN was used?

For questions about credits that must carry over into multiple quarters, include the following:

  • The original value = $.00

  • The income tax return filed that elected a qualified small business payroll tax credit on Form 6765: Form XXXX

  • The calendar year that was covered by the income tax return: XXXX

  • Date the income tax returned was filed: XX/XX/20XX

  • Confirmation the EIN used is the same.

  • Previously used credit: $.00

  • Remaining value: $.00

 

RELEVANT FORMS