Posted December 03, 2019 at 10:55 AM


Early-stage businesses in the software, technology and manufacturing industries generally invest a significant amount in research to develop their new product and core technologies.  These businesses usually generate net operating losses (NOL) rather than taxable income during these early years so do not pay income tax.  These companies will not receive benefit from a tax credit, such as the research tax credit, without an income tax liability. 

Beginning in 2016, these early-stage companies could offset certain payroll taxes with research tax credits.   This reflects an immediate cash benefit to companies during periods with significant expenses related to research activity but little to no income.  Research credits may offset federal payroll taxes and Georgia payroll taxes.  Monetizing the research credit provides start up companies with additional funds to invest in R&D activities.



Federal Payroll Tax - The company generating the credits must be a qualified small business.  A qualified small business is a C-corporation, S-corporation, or partnership that:

·        Has gross receipts of less than $5,000,000 for the taxable year, and

·        Did not have gross receipts for any taxable year before the 5-taxable-year period ending with the taxable year.  (e.g., For the tax year 2019, the taxpayer could not have any gross receipts in 2014 or prior tax years.)

If applicable, research credits may be used to offset the employer portion of the social security tax.  Taxpayers may apply up to $250,000 of research credits per year against the payroll taxes. 

Georgia Payroll Tax – All taxpayers eligible to claim the Georgia Research Credit may elect to offset Georgia payroll tax.


Election and Utilization

Federal Payroll Tax – A taxpayer must include the Research Credit in its timely filed business income tax return.  The taxpayer may claim the payroll tax credit by attaching completed Form 8974 to its next quarterly payroll tax return. 

Georgia Payroll Tax – The business enterprise must file Form IT-WH within 30 days after the due date of the Georgia income tax return (including extensions) or within 30 days after the filing of a timely filed Georgia income tax return, whichever occurs first.  The Georgia Department of Revenue has 120 days to approve the Research Credit. 

These rules allow taxpayers to realize the benefit quickly from research credits. 


Key Takeaways

Certain start-up companies may monetize the research credits quickly, even if the company does not pay federal or state income tax.  This benefit provides an incentive for businesses to invest in innovation by hiring employees and vendors. 

Advanta will help your business maximize research credits and payroll tax benefits by working with you to determine all qualifying research activities, review credit calculations and ensure all elections and forms are filed.  Call us at 678-638-6131.