Congressional Panel Approves Tax Credit for Research

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By Howard Perlman

Some employers may gain the ability to use the tax credit for increasing research activities to reduce their share of Social Security tax under a markup document issued July 21 by the congressional Joint Committee on Taxation.

The markup document's provisions are to be incorporated into a tax-extenders bill being drafted by the Senate Committee on Finance, which voted 23-3 on July 21 to approve incorporation of the markup document's provisions into the bill.

The research credit, which is detailed in Section 41 of the Internal Revenue Code but expired for expenses incurred after Dec. 31, 2014, is one of the numerous tax credits or deductions that would be extended to cover expenses incurred in 2015 and 2016 under the tax-extenders bill, which is to be assigned a bill number after it has been drafted.

Starting with expenses incurred in 2015, qualified small-business employers would be able to apply the research credit against the employer portion of Social Security tax instead of income tax liability, but would not be able to apply the research credit for Medicare tax or the employee portion of Social Security tax, under the markup document issued by the congressional Joint Committee on Taxation on behalf of Rep. Paul Ryan (R-Wis.), chairman of the committee.

The standard maximum annual amount of the research credit that an employer would be able to apply against its portion of Social Security tax is $250,000 under the recommendation offered by the Joint Committee on Taxation, which modified a markup document issued July 17 by the committee.

The Work Opportunity Tax Credit, which employers can acquire based on wages paid to certain classes of employees who began to work for them by Dec. 31, 2014, is to be modified under the tax-extenders bill to be acquirable based on wages paid to certain classes of employees who began to work for their employer in 2015 or 2016.

Wages paid to those among the nine classes of employees that were covered by the credit in past years, which include qualified veterans and qualified recipients of supplemental security income, are to be applicable for the credit in 2015 and 2016 under the tax extenders bill.

For wages paid to employees in most of the classes, the credit equals 40 percent of the employees' qualified first-year wages of up to $6,000, for a maximum credit of $2,400 for each employee.

A 10th covered class for the Work Opportunity Tax Credit was included in the Joint Committee on Taxation's markup document issued July 21 and is to be incorporated into the tax extenders bill. This class would be those who exhausted regular unemployment compensation benefits under state and federal laws, and wages paid to members of this class are to be applicable for the credit as long as the credit is available in general.

Under the Joint Committee on Taxation's markup document issued July 17, the tax extenders bill would restore parity between qualified parking benefits and qualified transit and van-pool benefits at $250, which would retroactively be in effect for all of 2015 and also would be in effect for 2016.

To contact the reporter responsible for this story: Howard Perlman at hperlman@bna.com

To contact the editor responsible for this story: Michael Trimarchi at mtrimarchi@bna.com