PATH Act of 2015 - R&D Tax Credits

BACKGROUND

The Research and Development Tax Credit was enacted in 1981 as a temporary credit. However, it has almost always been extended year to year, sometimes for a few years at a time. Uncertainty regarding the extension of the credit and its current AMT limitation has historically limited taxpayers ability to take advantage of the credit. If this bill is signed into law, many more companies will now be eligible for the significant tax savings that the credit provides.

A portion of the tax extenders (Protecting Americans from Tax Hikes (PATH) Act of 2015) passed by the House yesterday has a very favorable Research and Development Tax Credit component. The bill is expected to be passed by the Senate this week and then signed into law by the President before year end.

HOW THIS BILL WILL AFFECT BUSINESS

The permanent feature of the bill will affect all business. It will help businesses more appropriately plan and conduct their R&D studies. The AMT relief will help a significant number of small businesses and startups that were ineligible for the credit previously.

KEY Research & Development Tax Credit Provisions

• Credit to become permanent retroactive to 01/01/15

• Credit eligible to offset Alternative Minimum Tax (AMT) starting in tax years after 12/31/15 (for eligible small businesses with $50M or less in gross receipts for the prior three years)

• Credit eligible to offset payroll tax starting in tax years after 12/31/15 (for some start-up companies)