Yesterday afternoon, on December 17, 2015, the U.S. House of Representatives passed the “Protecting Americans from Tax Hikes Act of 2015” in a 318-109 vote. This bill includes a broad range of so-called tax extenders, including the R&D tax credit. This provision makes the R&D tax credit a permanent tax incentive. Congress first enacted the R&D tax credit in 1981, but made it temporary. Since its inception, the credit has been extended 16 times. If this bill is passed into law, there will be no need for extension number 17, since the R&D credit will finally be a permanent tax incentive. This is a significant change for taxpayers because companies can now strategically plan for R&D activities and calculate the after-tax cost of R&D investments without considering the uncertainty surroundingthe renewal of a temporary tax credit.
Additionally, the credit is now even more attractive for startup companies. Starting in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability. The credit can also be utilized by certain small businesses against the employer’s payroll tax (FICA).
This tax bill is part of a broader deal reached between House and Senate leaders to fund the federal government for 2016. The final Senate vote is set for today (Friday, December 18th).
It is important to consider the inclusion of research tax credits for tax planning purposes. Please contact Braithwaite Global, Inc. for more information.