Understanding R&D Tax Credit for Manufacturers

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What Manufacturers Need To Know About Research & Development (R&D) Tax Credits

The R&D tax credit is a tax incentive encouraging companies to invest in research and development activities in the United States.

The credit is available to businesses that engage in qualifying R&D activities, such as developing new products, processes or software, and improving existing products or processes.

For manufacturers in the United States, there have been several recent changes to the R&D tax credit:

Permanent extension of the credit: The R&D tax credit has been permanently extended, which provides manufacturers with greater certainty and stability when planning their R&D activities.
Expanded eligibility for small businesses: The Protecting Americans from Tax Hikes (PATH) Act of 2015 expanded the R&D tax credit to include certain small businesses that previously could not claim the credit due to their size or structure. This change benefits many small and medium-sized manufacturers.
Alternative simplified credit (ASC): The ASC is a simplified method for calculating the R&D tax credit. The ASC allows businesses to claim a credit of up to 14% of their qualified research expenses.
Payroll tax offset: Beginning in 2016, qualified small businesses (defined as those with less than $5 million in gross receipts and those in their first 5 years of existence) can elect to use the R&D tax credit to offset their...