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The Inflation Reduction Act of 2022 doubles the federal R&D payroll tax credit opportunity for Qualified Small Businesses. Taxpayers should ensure they are taking full advantage of the R&D tax credits available to them.

Published in Thomson Reuters Practical Tax Strategies –
December 2022 Issue

By Yair Holtzman

In August 2022, the Inflation Reduction Act of 2022 was passed by Congress and signed into law. While much of the attention surrounding the more than trillion-dollar legislation has been attributed to its climate change and health care provisions, unbeknownst to many, this legislation will also double the federal R&D payroll tax credit opportunity for Qualified Small Businesses (QSBs).

Prior to the Inflation Reduction Act, in 2015 the Protecting Americans from Tax Hikes (PATH) Act had previously expanded eligibility for QSBs to claim R&D tax credits, while also making the R&D tax credit permanent. Most importantly, the PATH Act allowed QSBs with no income, and therefore no income tax liability, to utilize R&D payroll tax credits against the employer portion of Social Security taxes up to $8,240 per employee, up to $250,000 per year, for a total potential benefit of $1.25 million over five years.