Form 8974 Instructions

Form 8974 calculates the amount of qualifying small business R&D payroll tax credits created, used, and available for future research and development operations. These credits can be claimed on the company's employment tax return(s).

What is Form 8974?

Small businesses or start-ups utilize Form 8974 to calculate the amount of qualified small business payroll tax credit for increasing research activities they can claim on Form 941 when filing their employment tax returns. Only qualified small enterprises who want to receive payroll tax credits should submit Form 8974.

How can I claim the R&D credit for payroll taxes?

To claim R&D credits, businesses must fill out and submit Form 6765, Credit for Research Activities. After making the election to claim the credits, the company must submit Form 8974 with their quarterly Form 941 to claim the amount of qualifying small business payroll tax credits for increased research efforts.

What are the changes to Form 8974 for 2023?

Form 8974 has been updated and modified. These modifications are in reaction to the Inflation Reduction Act of 2022 changes.

The Inflation Reduction Act of 2022 doubled the available credit from $250,000 to $500,000. However, the employee part of social security has been decreased to $250.00, with any residual credit deducted from Medicare taxes.

As a result, Line 12 of Form 8974 now reads "Credit against the employer share of social security tax" rather than "Credits".

In addition, new lines 13-17 on Form 8974 have been added for the 2023 tax year and beyond.

What qualifies for the R&D tax credit?

To be eligible for R&D tax credits, businesses must meet four requirements.

• Your study must involve developing new products or processes or improving existing ones.
• Your research operations must incorporate experimental techniques such as quality control, modeling, testing, and trial & error.
• Your research operations should be technical, relying on hard science and its principles to attain the desired outcomes.
• Your research operations should eliminate ambiguity, which implies that your company must be confident that you can accomplish the intended result or that you have adopted a design or development process.

In addition, if you are filing Form 8974, the business must meet the following requirements of a qualified small business (QSB).

• You must be a qualified business with a gross receipt of less than $5 million for the tax year.
• No gross receipt for any taxable year for any five-taxable year proceeding to the current tax year.

What is the difference between Form 6765 and 8974?

• Form 6765, commonly known as Credit for Increasing Research Activities, is used by businesses to claim credits for increased research activities. These credits are designed to encourage businesses to invest in R&D activities.
• The Qualified Small Business (QSB) uses Form 8974 to calculate the amount of R&D payroll tax credits that can be claimed for a specific quarter or tax year on their employee payroll tax return(s). The Protecting Americans from Tax Hikes (PATH) Act of 2015 authorized eligible small businesses to claim a part of their R&D credits as a payroll tax credit.

How can I complete Form 8974 in minutes with TaxZerone?

Form 8974 is simple to fill out using TaxZerone. Follow these procedures to finish Form 8974 while filing your quarterly Form 941 with TaxZerone.

• Choose the tax year and quarter.
• Fill out the essential information on your Form 941.
• Enter a value in Line 11, Qualified small business payroll tax credit for increasing research activities in Form 941.
• Complete and attach Form 8974 (if necessary).
• Review your Form 941.
• Send your Form 941 to the IRS.

Get started with TaxZerone immediately. TaxZerone has several useful features to assist you file Form 941 more efficiently and accurately.