Short answers to the questions the academy is asked most about the federal research credit, grouped the way the country guide is organised. Each answer links to the page that covers the subject in full. This page carries FAQPage structured data so the questions can appear in search results.
Eligibility
Who can claim the US research credit?
Corporations, partnerships, S corporations, individuals, estates and trusts that pay or incur qualified research expenses can claim. Partnerships and S corporations pass the credit through to their partners and shareholders. There is no size test for the basic credit, although the payroll tax offset is limited to qualified small businesses. See eligibility.
What is the four-part test?
The four-part test is the US definition of qualified research. Work must have a permitted purpose (a new or improved business component), be technological in nature, be undertaken to eliminate uncertainty, and involve a process of experimentation. A project must pass all four parts. See the four-part test.
Does the research have to succeed?
No. The test asks whether there was uncertainty at the outset and whether the work was a process of experimentation to resolve it. A project that failed can qualify; a project that succeeded without any uncertainty cannot.
Does the work have to be done in the United States?
Yes. Research conducted outside the United States is excluded, whoever employs the researchers. Wages and contract research for work performed abroad do not count.
Can we claim for software we built for our own use?
Only if it passes additional tests. Software developed primarily for the taxpayer's internal use must also be innovative, involve significant economic risk, and not be commercially available, unless an exception applies. See internal use software.
Costs and calculation
Which costs count?
Wages, supplies and 65% of contract research costs, linked to the qualifying work, together with amounts paid for the right to use computers in the research. Overheads, equipment, depreciation and employer payroll taxes do not count. See eligible expenditure.
How much is the credit worth?
The regular credit is 20% of qualified research expenses above a base amount. The alternative simplified credit is 14% of qualified research expenses above 50% of the average for the previous three years. Lower rates of 15.8% and 11.06% apply if the reduced credit is elected under section 280C(c). For a company whose spending is steady year on year, the alternative simplified credit works out at about 7% of total QREs. See ASC versus regular method.
What if we have no qualified research expenses in the prior three years?
Under the alternative simplified credit the rate drops to 6% of the current year's QREs when the taxpayer had no QREs in any one of the three preceding years. Under the regular credit a start-up uses a fixed-base percentage of 3% for its early years.
Is the credit refundable?
No. Unused credit is carried back one year and forward twenty. Qualified small businesses can elect to apply up to US$500,000 a year against payroll tax, using Form 8974, which gives a cash benefit to companies with no income tax. See payroll tax offset.
How does the credit interact with section 174?
Section 174 governs the deduction of research and experimental expenditure; section 41 gives a credit on a narrower set of costs. Unless the reduced credit is elected, the deduction is reduced by the credit. Domestic research costs for tax years beginning after 2024 can again be deducted in the year incurred under section 174A, while foreign research costs remain amortised over 15 years. See section 174.
Claiming and deadlines
Do we need to register or apply first?
No. There is no pre-registration. The claim is Form 6765, filed with the income tax return.
Can we claim for earlier years?
Yes, by amended return, within three years of filing the original return or two years of paying the tax, whichever is later. A refund claim must identify the business components, the research activities and the qualified research expenses by category. The payroll tax election and the reduced credit election cannot be added by amendment. See deadlines.
What is Section G of Form 6765?
Section G collects information about each business component: its name and type, the information sought to be discovered, and the wages, supplies and contract research allocated to it. It is required for tax years beginning after 2025, with some exceptions. See Form 6765.
Reviews
How likely is an examination, and what will the IRS ask for?
Most claims are not examined. Those that are receive information document requests covering the business components, the evidence for each part of the four-part test, the basis of wage allocations, contracts, exclusions and the calculation, and the examiner may interview the engineers. Contemporaneous records organised by business component answer almost all of it. See reviews and audits and documentation.
Related pages
- United States guide overview
- Academy-wide frequently asked questions
- Guide: common R&D claim mistakes
- Program: R&D Tax Fundamentals
Official sources
Educational content only, not tax advice. See the disclaimer.