Both must be true to apply credit against payroll tax (FICA), up to $500k. Otherwise it offsets income tax only. Estimate only — file Form 6765 with a specialist.
Federal credit
$43,350
Usable vs payroll tax
$43,350
qualified small business
Qualified expenses
$722,500
Contractors @ 65%
$32,500
IRS limit on contractor QREs
Documentation checklist
- □Document the technical uncertainty you were trying to resolve
- □Keep records of experiments / iterations / hypotheses tested
- □Track engineer time allocated to qualifying R&D (calendar exports, Jira)
- □Save contracts showing US-based contractor work (65% counts)
- □Tie cloud/supply spend to specific R&D projects, not BAU operations
- □Confirm the work is in a hard science / engineering / software discipline
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About
The federal R&D tax credit (Section 41) can offset up to $500k of payroll tax for early-stage startups — real cash, not a deduction. This estimator computes Qualified Research Expenses and the likely credit.
How it works
- 01QRE = engineer payroll × R&D time% + contractor R&D × 65% + cloud/hosting for R&D.
- 02Simplified ASC credit ≈ 6% of QRE for new companies (no prior 3-year base).
- 03Qualified small businesses (< 5 yrs, < $5M gross receipts) can offset payroll tax up to $500k/yr.
Examples
Pre-revenue seed startup
$800k engineer payroll, 80% R&D, $50k contractors, $40k cloud → QRE ≈ $722k, credit ≈ $43k. All usable against payroll tax.
Series A SaaS
$3M engineering, 70% R&D = $2.1M QRE, ~$126k credit. First $500k offsets payroll; the rest carries forward against income tax.
FAQ
Do I need a study?+
Yes — to defend the credit on audit. Specialized firms (Neo.Tax, MainStreet, TaxRobot) do this for 15–25% of the credit. Worth it.
Does AI/ML research qualify?+
Often yes — building novel models, training pipelines, infrastructure for ML. Routine fine-tuning of existing models is harder to defend.
Are foreign contractors eligible?+
No — only US-based contractor labor qualifies for the federal credit.