This track is for founders and early finance hires of a United States company that is loss-making or pre-revenue and is deciding whether, when and how to claim the federal research credit under section 41. What changes is the answer to "is it worth claiming": the credit is an income tax credit and is not refundable, so for a company with no income tax to pay the near-term value depends on whether it is a qualified small business that can elect the payroll tax offset, and on filing that election on time.
How the United States rules change the program
| Module | What is different in the United States | Country page |
|---|---|---|
| Is it worth claiming | Not refundable. Unused credit is carried back one year and forward twenty years, unless the company is a qualified small business and elects to apply up to US$500,000 a year against payroll tax, using Form 8974. That election, not the headline rate, decides whether a startup receives cash and when. | Payroll tax offset |
| Setting up from day one | No pre-registration. Keep records that link each business component to the four-part test and to the wages, supplies and contract research costs you claim. Wages count in full where substantially all, meaning 80 percent or more, of an employee's services are qualified services. | Documentation |
| Funding interactions | Research is funded if payment to the taxpayer is not contingent on the success of the research, or if the taxpayer does not retain substantial rights in the research; funded research is excluded, but only to the extent of the funding. For tax years beginning after December 31, 2024, domestic research or experimental expenditures are deductible when paid or incurred under section 174A. | Funded research exclusion |
| Your first claim | Form 6765, filed with the income tax return. If the taxpayer has no qualified research expenses in any one of the three preceding tax years, the alternative simplified credit is 6 percent of the current year QREs. The payroll tax election and the section 280C(c) reduced credit election must both be on a timely filed original return including extensions. | How to claim |
Forms and deadlines
| Form or step | Deadline or timing | Country page |
|---|---|---|
| Form 6765 | With the income tax return. Calendar-year C corporation returns are due on the 15th day of the fourth month after year end, with a six-month extension available; partnership and S corporation returns on the 15th day of the third month. | Form 6765 |
| Payroll tax election (Form 6765, Section D) | On a timely filed original return including extensions; cannot be made on an amended return, except as provided by transitional relief. The election may not be made for more than five taxable years. | Payroll tax offset |
| Form 8974 | Attached to the employment tax return for the first calendar quarter beginning after the date the income tax return making the election is filed. Any excess over the employer tax liability for a quarter is carried forward to the succeeding quarter. | Payroll tax offset |
| Section 280C(c) reduced credit election | On a timely filed original return including extensions; irrevocable for that year. | Section 174 |
Key rules to know
Who is a qualified small business. A corporation or partnership with gross receipts of less than 5 million US dollars for the taxable year and no gross receipts for any taxable year preceding the five-taxable-year period ending with the taxable year. The second test matters more than founders expect. Members of a controlled group are treated as a single taxpayer for the gross receipts tests and the annual limit is allocated among them.
How the offset is paid. The elected amount is applied first against the employer share of social security tax up to 250,000 US dollars and then against the employer share of Medicare tax up to 250,000 US dollars. An employer may reduce its payroll tax deposits in anticipation of the credit, which is where the cash arrives. For a partnership or S corporation the election is made by the entity, which claims the credit against its own employment taxes.
The deduction interaction. Section 280C(c) reduces the research expense deduction by the amount of the research credit unless the reduced credit election is made; the reduced credit equals the credit less the product of the credit and the maximum rate of tax under section 11(b), currently 21 percent. Model both routes before the original return goes in.
Reporting relief is not record-keeping relief. Section G is optional for qualified small businesses that make the payroll tax election and for taxpayers with total QREs of 1.5 million US dollars or less and gross receipts of 50 million US dollars or less. Even so, records must be retained in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit. Research conducted outside the United States is excluded, so an offshore team adds nothing.
Worked example
Illustrative example. Larkspur Sensors Inc, a hypothetical Delaware C corporation with a calendar tax year, was founded late in 2024, incurred its first qualified research expenses in 2025 and has 2026 gross receipts of US$800,000 and a loss. Its sensing module passes the four-part test.
| Step | Figures | Result |
|---|---|---|
| Gather QREs | Wages US$600,000; supplies US$35,000; US$100,000 paid to a US contract research firm at 65%, so US$65,000 | QREs US$700,000 |
| Choose a method | No QREs in 2023, one of the three preceding tax years, so the alternative simplified credit is 6 percent | 6% of US$700,000 = US$42,000 |
| Is it worth claiming | Gross receipts under 5 million US dollars and none before 2025: a qualified small business. Elects in Section D to apply the whole US$42,000 against payroll tax | Payroll tax election US$42,000 |
| File | Form 1120 with Form 6765 filed in March 2027; the first calendar quarter beginning after filing starts 1 April 2027 | Form 8974 with the employment tax return, usually Form 941, for Q2 2027 |
| Receive | Employer share of social security and Medicare tax US$25,000 a quarter: Q2 applies US$25,000 and carries US$17,000 forward; Q3 applies US$17,000 | US$42,000 as reduced payroll deposits within two quarters of filing |
Had Larkspur missed the election, the US$42,000 would have stayed an income tax credit carried forward twenty years. In 2027 the preceding years are 2024, 2025 and 2026, and 2024 had no QREs, so the 6 percent rate applies again; from 2028 the 14% rate above 50% of the three-year average takes over.
Related country guide pages
Self-check questions
Answer each question, then open it to compare.
Your company has a loss for the year and no income tax to pay. Name the one election that turns the research credit into cash, and the form it is claimed on.
A company had no qualified research expenses in 2023. What rate does the alternative simplified credit use for 2026, and why?
The finance lead filed the 2026 return in April 2027 and only then thought about the payroll tax offset. Can it be added on an amended return?
A customer pays for a development project under a contract that is not contingent on success and keeps all rights to the result. Can the startup claim those costs?
A startup that makes the payroll tax election is told it can skip Section G of Form 6765. What should it keep anyway?
Official sources
- Instructions for Form 6765, Credit for Increasing Research ActivitiesInternal Revenue Service
- Instructions for Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research ActivitiesInternal Revenue Service
- 26 U.S. Code section 41, Credit for increasing research activitiesLegal Information Institute, Cornell Law School
- Treasury Regulation section 1.41-4A, paragraph (d), funded researcheCFR
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Educational content only, not tax advice. See the disclaimer.