H.R. 8253 Would Double the R&D Credit Rate and Expand Access to Startups
Despite so many key issues and topics that remain gridlocked in Congress, the federal Research and Development tax credit his historically been one of the few areas that leaders on both sides of the aisle can consistently agree on. And now, more good news may be in store for it.
Just recently, Rep. Jackie Walorski, R-Indiana, introduced new legislation that would make the credit even more valuable to the U.S. taxpayers looking to claim it, and undoubtably would encourage more businesses to invest in innovation.
The new Bill H.R. 8253 – ‘Fostering Innovation and Research to Strengthen Tomorrow (FIRST) Act’ – would enhance existing federal credit legislation through credit rate increases and through improved access for business startups:
Credit Rate Increases
The new legislation proposes at least doubling the credit rates that are currently available to taxpayers under 3 different allowable credit calculation methodologies. For taxpayers which are eligible to claim the general credit methodology, the proposed change would move the credit rate from 20% to 40%. Due to its more simplified credit calculation methodology, the majority of taxpayers who claim the credit today opt for the Alternative Simplified Credit (ASC) methodology, and under this method the Act proposes a credit rate change from 14% to a 28%. Lastly, for the subset of U.S. companies with no history of R&D in recent years, the new legislation proposes a credit rate change from 6% to 14%.
Improved Access to Business Startups
The new legislation also strengthens the opportunity for startup businesses to utilize the R&D tax credit to offset a larger subset of their federal payroll tax liability. The new legislation once again proposes doubling the currently allowable amount of payroll taxes to be offset from $250,000 up to $500,000. In addition, the bill provides for a significant increase to the gross receipts a taxpayer may earn in a tax year, and still be categorized as a “startup” for purposes of eligibility for the payroll tax offset provision.
Recent Favorable Legislative Changes:
The proposal of H.B. 8253 follows a recent wave of favorable changes to the Federal R&D tax credit including the PATH Act of 2015 which granted the R&D tax credit permanent status, and introduced several other changes allowing small to mid-size businesses to utilize the credit against Alternative Minimum Tax (AMT) or payroll taxes. Then, just two years later, the Tax Cuts and Jobs Act of 2017 preserved the R&D tax credit entirely while also creating new favorable provisions.
We at Tax Credits Group applaud Rep. Walorski for bringing this Bill forward, and taking legislative action to further strengthen an already invaluable credit. We are hopeful that the FIRST Act will receive the bipartisan support it deserves and that this legislation will soon be codified.
We will continue to monitor this legislation and bring forward updates.