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Where’s my R&D tax credit?

What happens after you file your R&D Tax Credit?

If you’re wondering when you’re going to receive your R&D Tax Credit, the short answer is: it’s all down to when you, or your accountant, filed your income taxes and Form 6765.

As we all know, dealing with the IRS can be… unpredictable–so we’ve created a quick reference on:

  • how the R&D credit works,
  • when you should expect your credit,
  • important dates and deadlines,
  • and steps for claiming your R&D tax credit as a payroll tax credit with your payroll provider.

Preparing and Filing Your Claim

When preparing your R&D Tax Credit, you can prepare your own, have your accountant manually prepare it for you, or use a third-party service. Regardless of the preparation method, there are key steps you need to follow to file and receive your credit.

Filing Form 6765

After you have prepared your R&D Tax Credit, you or your accountant need to file Form 6765, along with your Federal Income Tax Return.

The R&D credit is based on the qualified research expenses incurred during the tax year and is on the business income tax return for the company claiming the credit.

There is a section at the bottom of Form 6765 to allow qualified small businesses to apply all the credit to payroll taxes instead.

Note: Don’t want to apply all of your credit? You can also apply other amounts up to a maximum of $250,000.

Payroll Credit & Filing Form 8974

If you make the election to take the payroll credit, then you must file Form 8974 with your quarterly tax return. Hand this form off to your payroll provider, and they will incorporate the credit into your payroll tax return.

The credit is first applied against employer payroll taxes quarterly, beginning in the first calendar quarter after you file your federal income tax return.

Here’s an example:
You file your company’s income tax return with Form 6765 in Q2, between April 1 and June 30. The credit will offset your employer's payroll taxes beginning in Q3, and for every quarter until the credit is exhausted.

However, the exact timing and method of tax savings depend on your payroll provider and R&D credit preparer--if you’re working with a credit preparer.

Note: Some R&D Credit preparation companies offer a loan advance to get your credit amount right away instead of waiting. There are some cons to opting for this type of service, like:

  • As with any loan, this process can be problematic and frustrating.
  • There could be incremental fees.
  • Not to mention a scenario where the amount of your return changes, but the loan amount is already locked in.

Important Dates

Because Form 6765 needs to be filed with your income tax return, timing is everything when getting your R&D tax credit as soon as possible. Trust us, we understand wanting to reduce your burn–so keep in mind these dates:

End of Quarter Deadlines:

  • Q1: March 31
  • Q2: June 30
  • Q3: September 30
  • Q4: December 31

Extension Filing Deadline:

  • October 15

Payroll Providers Turnaround:

  • 1-30 days*

*Gusto is currently the only provider that offers real-time refunds for an additional cost.

IRS Turnaround:

  • 8-10 weeks

How soon can I see the refund?

This is a hard question to answer and, unfortunately, the most honest answer is:

  1. it depends on when your accountant files your income tax return and Form 6765.
  2. It also depends on how quickly your payroll provider files payroll taxes,
  3. AND it depends on how long it takes the IRS to manually process your R&D credits.

As we said, it’s a hard question to answer.

This is why all the above dates and turnaround times are so important.

It’s all a domino effect.

By meeting the income tax return filing deadline–be that on April 15 or by the end of each subsequent quarter–you can then have your payroll tax provider process your payroll tax credits, which helps get everything over to the IRS quick, fast, and in a hurry.

The best way to calculate when you'll see your tax credit is:

  • Look at the date that you filed your income tax return.
  • Add 30 days to that date, which is the maximum time payroll providers have to file.
  • Then add 8-12 weeks for the IRS (yes, we added two more weeks to the standard 8-10 weeks for the IRS because of the delays they’re already facing).

The date that you land on could serve as a good approximation for when you can expect your credit.

How will I receive the tax savings from the credit?

This depends on your payroll provider.

Note: check with your payroll provider to confirm how the R&D tax credit will be refunded.

However, we can give you a general overview of the process:

  1. Your payroll provider will file your payroll credit after the close of the quarter.
  2. The IRS will issue a refund 8-12 weeks after processing the quarterly payroll tax return with your R&D credit.

Note: even after you submit the credit information to your payroll provider, it's important to remember that most providers will continue to withhold and make deposits of your regular employer's payroll taxes each pay period.

If you use a PEO, a professional employer organization–where your employees are “employees of record” for the payroll company–the process is similar, except that the PEO will receive and reconcile the credit across all their client companies first and then they will then credit your account.

Note: what's the fastest way to enjoy your tax savings? Do not submit the employer payroll until you know the credit amount. That way, you don’t have to wait for a refund check from the IRS.

Currently, Gusto is the only payroll provider that allows this option. However, Gusto charges you $100 a month extra for this service, coined the “Real-Time Refund.”

How to file with your payroll provider

Last, but certainly not least, payroll!

Here’s a guide to filing payroll tax credits with the following payroll providers. Just click a menu item to view the steps for your provider:

Want to learn more about all things R&D? Check out some of our related articles and don't forget to sign up for our newsletter to keep up with Neo.Tax!