New legislation has been introduced by Senator Chris Coons of Delaware that will boost federal investment in private American businesses that perform research and development (R&D), including activities that will help fight the Coronavirus and rebuild the economy. The bipartisan, bicameral Furthering Our Recovery With American Research & Development (FORWARD) Act is intended to support the development of vaccines, products, and technologies necessary to move our country forward and out of crisis.
Startups, manufacturers, tech firms and other small-medium size businesses right here in the U.S. have the drive and skill to create new solutions to our nation’s most pressing problems but they often struggle to access the funds they need for research and development that will help put the country back together. This particular piece of legislation will make it easier for cutting-edge ideas to become real-life solutions.
How the FORWARD Act Makes R&D Tax Credits More Attainable to More Businesses
The FORWARD Act will make changes to and expand what is currently outlined in Internal Revenue Code Section 41: Credit for Increasing Research Activities.
Qualified Research Expenditure Expansion
Under this piece of legislation, the definition of a Qualified Research Expenditure (QRE) is expanded to include employee training expenses.
What exactly does this mean? It means that any wages paid or incurred to an employee in connection with training for the employee to perform qualified services like engaging in qualified research, engaging in the direct supervision of qualified research, or direct support of qualified research activities can be redeemed with the credit.
This allows taxpayers to expand the number of qualified R&D expenses and will also expand the amount of tax-paying businesses that are eligible to receive the credit.
More Businesses are Eligible for the Credit with Qualified Small Business Definition Change
FORWARD would improve access to the credit for new small- and medium-sized businesses. Firms with up to $20 million in gross receipts and no gross receipts further back than the last 8 tax years will be eligible to use the credit to reduce a portion of their payroll tax obligation. This is up from current thresholds of $5 million and 5 years. A new de minimis threshold delays the start of the 8-year window until gross receipts exceed $25,000.
Randy Crabtree, CPA and Partner at Tri-Merit says the FORWARD act should have a stabilizing effect on the economy by putting more money back into businesses that are taking calculated risks and helping the country through this difficult period.
“FORWARD is designed to enhance the benefits of the R&D Tax Credit—not only by encouraging businesses to develop new products or processes that may be useful under ‘the new normal,’” Crabtree says.
“Whether companies have modified manufacturing operations in light of the pandemic or whether they continue operating as usual, many have no idea that they are already eligible for the R&D tax credit and are missing out on valuable dollars that can be invested back into the business,” he added.
FYI: This expansion and change is effective for taxable years beginning after December 31, 2019.
R&D Credit Rate Increase for Domestic Manufacturers
For R&D performed by domestic manufacturers in collaboration with industry associations, academic institutions, federal laboratories, and other entities, the credit rate is increased by one quarter to 25% and 17.5% for the Regular Research and Alternative Simplified Credits (ASC).RCompanies do need to generate the majority of their gross receipts from manufacturing their products in the United States.
The intention behind this credit rate increase is to strengthen the economy by incentivizing domestic manufacturing.
The FORWARD Act would unlock the full potential of the R&D Tax Credit by making it more accessible to smaller businesses and providing them with the funds needed to help put the U.S. back on track and potentially save lives.
To qualify for the credit, you must be able to support, document and substantiate your case. Tri-Merit makes the process surprisingly straightforward requiring minimal time from CPAs and their clients. For more information, call (847) 595-0094 or go to the website to set up a no-obligation consultation with our R&D tax credit experts.
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