Congress Looks to Catalyze Innovation with Powerful New R&D Tax Credits

The Research and Development (R&D) tax credit is already one of the most powerful government incentives available to U.S. businesses of any size, and in virtually any industry. The R&D tax credit benefits U.S.-based companies attempting to develop new or improved products or processes used in their trades or businesses. Qualification for the credit does not depend on the success of the initiatives, but rather on whether the taxpayer has performed research and experimentation through technical activities intended to eliminate design or development uncertainty. This generous incentive is particularly helpful for small businesses and start-up companies because it enables them to remain competitive with their peers while continuously refueling their innovation pipeline.

Midway through 2022, with the U.S. economy predicted to enter a recession, U.S. House Ways and Means Committee Representative Jackie Walorski  introduced the Fostering Innovation and Research to Strengthen Tomorrow (FIRST) Act. This legislation, if passed into law, would essentially double the R&D tax credit benefit for taxpayers while also allowing more startups to utilize it.

“Doubling the R&D tax credit will encourage American companies, especially small businesses and startups, to invest in innovation that will unleash economic growth and prosperity,” stated Walorski. It is no surprise that the legislation is supported by the National Association of Manufacturers (NAM). “The manufacturing industry is the backbone of American Research and Development and this bill would support jobs, boost innovation and help ensure America’s future competitiveness,” added David Eiselberg, Senior Director of Tax Policy, NAM.

Specifically, the FIRST Act would make the following changes to the existing R&D tax credit:

• Double the “Traditional” tax credit rate to 40% from 20%;
• Double the Alternative Simplified Credit (ASC) tax credit rate to 28% from 14% and increase it to 14%, up from 6%, for startup companies; and
• Double the tax credit limit for startup companies from $250,000 to $500,000.

As with all pending tax legislation, Anchin specialists can provide guidance on topics related to the FIRST Act, and are available to assist taxpayers with any questions or concerns they may have. For more information, please contact Yair Holtzman, Partner and Practice Leader of Anchin’s Research and Development Tax Credits & Incentives Group, or your Anchin Relationship Partner.