Tax basics
How to get cash back when you're not profitable
The payroll tax offset turns the R&D credit into quarterly cash for pre-profit startups. Here's how to claim it and actually collect.
by Claimship ·
Most tax credits are useless if you don't owe income tax. The R&D credit is different.
Qualified small businesses can elect to apply the credit against payroll taxes instead. Every company with US employees pays those, profitable or not. That's what makes this credit real money for startups.
Who qualifies
- Under $5 million in gross receipts this year.
- No revenue more than five years ago.
- Qualified research expenses, which for most startups means engineering payroll.
The cap is $500,000 per year. Anything above it carries forward. Check if you pass the test in the calculator.
How the money arrives
Your CPA files Form 6765 with your return and makes the payroll election. The credit then offsets your company's share of payroll taxes each quarter.
You see it as a lower payroll tax bill, usually starting the quarter after you file.
The step everyone fumbles
The election is not automatic at your payroll provider. Someone has to tell Rippling or Gusto the credit exists. Plenty of startups file the form and never collect the cash.
Claimship pushes the elected amount into your payroll provider and tracks each quarter until you collect all of it.
