Congress made the research tax credit permanent and enhanced the credit. The changes are retroactive back to January 1, 2015.
Temporary Nature of the R&D Credit
The permanent research tax credit solves one of the ongoing problems with the credit. As critics of the credit have noted, the credit cannot provide much of an incentive when it constantly expires and has to go through the political process to be re-enacted every few years. Business simply cannot factor the availability of the credit when it was a temporary credit. Now that it is permanent, businesses should be able to factor the credit into their business and investment decisions.
R&D Credit AMT Offset
The enhancements to the credit include allowing the research tax credit to offset alternative minimum tax or AMT for some taxpayers.
Under the prior law, many taxpayers who would otherwise have qualified for the credit would have their credits reduced or eliminated because the credit only reduced regular income tax and not AMT. The new AMT-offset only applies to “eligible small businesses.” This is a business with less than $50 million in average gross receipts for the prior three years.
R&D Credit Payroll Offset
Another enhancement includes allowing “qualified small businesses” to offset their employer portion of FICA payroll taxes. There is a max of $250,000 offset for each year.
This benefit will no doubt be significant, as it will allow companies that do not have income tax to offset with the credit (such as start-up companies) or who have too many pass through shareholders/partners to make it too burdensome to take advantage of the credit.
These enhancements are not in effect until January 1, 2016.