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If you’re wondering when you’re going to receive your R&D Tax Credits, 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 R&D credits work, when you should expect your R&D credits, important dates and deadlines, as well as steps for claiming your R&D tax credit as a payroll tax credit with your payroll provider.
When it comes to 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 preparation method, there are key steps you need to follow to file and receive your credit.
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 computed based on the qualified research expenses incurred during the tax year, and is reported 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 of the credit to payroll taxes instead.
Don’t want to apply all of your credit? You can also apply some other amount up to a maximum of $250,000.
If the election is made to take the payroll credit, then Form 8974 is filed with your quarterly tax return–generally this form is handed off to your payroll provider, and they will incorporate the credit into your payroll tax return.
The credit is then applied against employer payroll taxes on a quarterly basis 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 payroll taxes beginning in Q3, and for every quarter until the credit has been fully consumed.
However, the exact timing and method of tax savings depends on your payroll provider and R&D credit preparer, if you’re working with a credit preparer.
Some R&D Credit preparation companies offer a loan advance so you can get your credit amount right away instead of waiting.
There are some cons to opting for this type of service. As with any loan, this process can be problematic and frustrating- there could be incremental fees not to mention if the amount you qualify for changes due to your tax situation changing your loan is already locked in.
Because Form 6765 needs to be filed with your income tax return, timing is everything when it comes to 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:
Extension Filing Deadline:
Payroll Providers Turnaround:
*Gusto is currently the only provider that offers real-time refunds for an additional cost.
This is hard question to answer and, unfortunately, the most honest answer is: it depends on when your accountant files your income tax return and Form 6765; it also depends on how quickly your payroll provider files payroll taxes; AND it depends on how long it takes the IRS to manually process your R&D credits.
Like we said, it’s a hard question to answer. Which is why all of 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 are then able to have your payroll tax provider process your payroll tax credits, which helps get everything over to the IRS quick, fast and in a hurry.
Your best estimate would be looking at the date that you filed your income tax return. Add 30 days to that date, which is the maximum amount of time payroll providers have to file. Then add 8-12 weeks for the IRS (yes, we added two more weeks for the IRS because of the delays they’re already facing). The date that you land could serve as a good approximate for when you might expect your credit.
This is dependent on your payroll provider. Please 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:
It’s important to remember that most payroll providers will continue to withhold and make deposits of your regular employer payroll taxes each pay-period–even after you submit the credit information to them.
They will then file your payroll return after the close of the quarter.
The IRS will then issue a refund between 8-10 weeks after the quarterly payroll tax return, with your R&D credit, is processed.
If you use a PEO, a professional employer Organization– where your employees are technically “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.
The fastest way to enjoy your tax savings is to 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 they coined the “Real Time Refund.”
Last, but certainly not least, payroll!
Here’s a guide to filing for payroll tax credits with the following payroll providers. Just click menu item to view the steps for your provider:
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