The recently enacted “Protecting Americans from Tax Hikes Act of 2015” (i.e., the 2015 PATH Act) contains a provision making permanent the popular research credit, which encourages businesses to invest more in research and development than they otherwise would, through a tax credit for spending on qualified research. The credit (1) is for 20% of current year qualified spending that exceeds a base amount related to gross receipts in certain earlier years and (2) can’t exceed 10% of the total spending in the current year on qualified research. Alternatively, taxpayers can irrevocably choose a simpler calculation.
The credit had lapsed for expenditures in 2015, but the legislation is also effective for those expenditures.
And importantly, the new law also makes two major changes to the credit, both favorable to small businesses. First, it provides that, beginning in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability. Beginning in 2016, the new law also provides that the credit can be used by certain even smaller businesses against the employer’s portion of the Social Security portion of the employer’s payroll tax (i.e., FICA) liability.
I hope this information is helpful. If you would like more details about these changes or any other aspect of the new law, please do not hesitate to call our office at (858)848-1040.