A Big Deal for Small Companies: Senate Passes the Inflation Reduction Act of 2022, Doubling Payroll Tax Credit for Small Companies

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes a significant increase to the amount of research and development (R&D) tax credits small businesses can utilize against payroll taxes. Under the new law, the payroll tax credit limit has increased from $250,000 to $500,000 for tax years beginning after December 31, 2022.

The Protecting Americans from Tax Hikes (PATH) Act of 2015 made the R&D tax credit more available to small businesses. The PATH Act allowed start-up businesses with gross receipts of less than $5,000,000 to utilize the credit to offset payroll tax liability. Prior to the PATH Act, start-up companies that did not have a tax liability were precluded from utilizing the R&D tax credit currently. The payroll tax credit was capped at $250,000 for each eligible year for a maximum of five years essentially providing small businesses with a potential benefit up to $1,250,000. Now, under the new bill, companies can benefit up to $2,500,000.

This new law provides a great incentive for startups that are not currently claiming the R&D tax credit to discuss their eligibility to do so.

To learn more about the R&D tax credit and how the new legislation may impact your business, contact Yair Holtzman, Partner and Leader of Anchin’s R&D Tax Credits Practice at 914.860.5599 or [email protected], or your Anchin Relationship Partner.