In mid-August 2022, The U.S. Congress passed the Inflation Reduction Act (H.R.5376) into law. Aside from sweeping spending on energy, renewables, conservation, and many other key items, the new bill creates potentially attractive opportunities for companies investing in innovation.
Great News for Payroll Offset Limits
A lesser-known element of the new bill could help small business start-ups. For tax years beginning after December 31, 2022, clients can use up to $500,000 USD in credits towards offsetting their payroll taxes (the current limit is $250,000 USD). This effectively doubles the amount of tax credit companies can use each tax year.
To qualify for the expanded credit, the small business would need to have less than $5 million of gross receipts and less than 5 years in business.
Great News For Payroll Taxes
The credit can also now be applied to employer portions of Medicare payroll tax liability as well, not just social security taxes. Meaning that companies can now not only use more credits in a given year, but also offset more payroll taxes each quarter. This is a key advantage for small businesses that may not have an income tax liability to improve cash flow.
These new adjustments will be able to be claimed for tax years starting in 2023 and help U.S. small businesses and startups with key ways to grow faster, hire more, invest in innovation, or improve their cash runway.
Talk to a Boast U.S. R&D tax credit expert to find out how the new law impacts your business.