IRS Notice 2017-23, provides guidance on a new provision explaining how eligible small businesses can take advantage of a new option enabling them to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability. Before 2016, taxpayers could only take the research credit against their income tax liability.
An eligible small business with qualifying research expenses can choose to apply up to $250,000 of its research credit against its payroll tax liability. An eligible small business chooses this option by filling out Form 6765, Credit for Increasing Research Activities, and attaching it to a timely-filed business income tax return. After choosing this option, a small business claims the payroll tax credit by filling out Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This form must be attached to its payroll tax return, for example, Form 941, Employer’s Quarterly Federal Tax Return.
For additional information on this tax credit, please refer to: https://www.irs.gov/uac/newsroom/for-small-business-startups-irs-explains-new-option-for-claiming-research-credit-option-still-available-for-those-that-already-filed and the IRS Notice 2017-23.