The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) provides that certain startup companies may elect to use the research tax credit to offset the employer’s portion of the social security (OASDI) payroll tax liability.
Qualified Small Business:
To be eligible to make a payroll tax credit election, a business must be a “qualified small business” (QSB) which is defined in the PATH Act as either:
- A corporation or partnership (C Corp, S Corp, LLC), if:
- a. The gross receipts of the entity for the tax year is less than $5,000,000, and
- b. The company is less than 5 years old.
Although the new rules established by the PATH Act allows an eligible taxpayer to make a payroll tax credit election, the amount of credit that may be used to offset the payroll tax is limited to $250,000.
If you want to know the R&D qualifying activities in Startup Companies, download the white paper