A provision in the proposed Inflation Reduction Act would boost the payroll tax credit for increasing research activities. Currently, a qualified small business (QSB) may elect to take part of the research credit as a payroll tax credit against its employer FICA tax liability. A QSB must have gross receipts of less than $5 million and meet other requirements. An eligible business with qualifying research expenses can then opt to apply up to $250,000 of its research credit against its payroll tax liability. Under the bill, beginning after Dec. 31, 2022, a QSB can choose to apply another $250,000 in qualifying research expenses (for a total of $500,000) against its payroll tax liability.
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