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Congress Makes the Research Tax Credit Permanent

The U.S. Senate approved a sweeping fiscal legislation package on December 18 that not only averts a government shutdown, but makes the research and development tax credit permanent.

The Senate passed the bill by a vote of 65-33, shortly after the House approved the legislation by a similar margin of 316-113 House. The legislation, entitled,Protecting Americans from Tax Hikes Act of 2015, will finance the government through September 2016. The bill next goes to President Barack Obama, who said he plans to sign it.

The research tax credit, which had been a temporary tax measure until now, has been extended 17 times since inception in 1981. Making the credit permanent will provide manufacturing and technology companies a measure of certainty about the benefits they can expect for their investments in innovation.

In addition to permanently extending the research credit, the legislation retroactively extends the credit from December 31, 2014 through 2015, and provides two important enhancements of the R&D credit for small businesses. First, shareholders of flow-thru entities such as S-corporations will now be able to use the credit to offset alternative minimum tax (AMT) for tax years beginning after December 31, 2015, thereby allowing such companies to derive cash benefits from the credit where they’ve been unable to do so in the past.

The other supplemental improvement included in the bill provides that start-up businesses can use the credit to offset payroll and FICA taxes for tax years beginning after December 31, 2015. This is significant as many “start-ups” pay little or no income tax and therefore receive limited benefit from the credit and the ability to reinvest in their businesses.

Note that additional details will be posted here soon.

 

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