Using the Georgia R&D tax credit against payroll withholding

Legislation allows Georgia R&D tax credit to be used against payroll withholding taxes in Georgia.

How does this work, you ask?

If the company is in net operating losses, they can use the credit against payroll tax.  Another benefit of the credit is that if the company has exhausted all of the other credits against 50% of their taxable income and cannot use the R&D credit, they can use the credit through payroll withholding tax reductions.

Unique features of the Georgia R&D tax credit

• Unused R&D tax credit does carry forward up to 10 years.
• There is a requirement to file an application with the Georgia Department of Revenue at least 30 days prior to filing the company’s Georgia income tax return, including extensions.
• The company must wait to receive approval from the State to take advantage of this payroll tax withholding adjustment.
• A business enterprise that has established eligibility for the research tax credit is allowed a tax credit equal to 10% of the excess of the qualified research expenses over the base amount on their state taxes.
• The credit taken in any one taxable year cannot exceed 50% of the business enterprise’s remaining Georgia net income tax liability after all other credits have been applied.

If you are interested in claiming the state or federal tax credit, click here to speak with a Swanson Reed specialist.

The Federal R&D Tax Credit can be a huge game changer for many U.S. companies, but many business don’t realize that the majority of states offer their own R&D tax credit which can be just as beneficial as the federal credit.

In fact, the credits are quite similar. Activities that qualify for the federal R&D credit can also qualify for a state level credit. Notably, the state of Georgia has one of the most taxpayer friendly R&D credits. The Georgia credit can be up to 10 percent of qualifying expenses, which, for some taxpayers, is a better benefit than the federal credit. However, the benefit of the Georgia credit doesn’t stop there.  For companies that don’t have any Georgia income tax liability, an election can be made to utilize the credit against Georgia payroll tax withholding.

Many taxpayers underestimate the state credit and aren’t completely aware of why it is so beneficial. Essentially, the withholding benefit allows companies to monetize the credit. To illustrate, rather than remitting withholding payments to the state each payroll cycle, the company uses the credit against the withholding amount and keeps the “cash” instead. For further benefit, the credit doesn’t expire, and it can be used each payroll cycle until all of the credit has been utilized, resulting in some companies’ “eliminating” the state payroll tax withholding payment for the entire year.

The state R&D credit is often overlooked, but shouldn’t be ignored. The varying state credits should be considered if looking to relocate a company or if an expansion is planned.  In some states, even a move to a different county within the same state could result in a difference in state R&D credit available.

Contact a Swanson Reed representative for further assistance on state or federal credits or click here to find out what type of benefits your state offers.

Inception and Benefits

The R&D credit was introduced in 1981, which implemented many promising incentives for companies making R&D investment plans. However, with the government letting it expire 16 times over the last 35 years, it essentially became an unreliable source for companies depending on the tax credits. Congress finally decided to make it permanent in 2015 and included a couple positive incentives:

Start-up Companies:

• with less than $5 million in gross receipts
• in their first 5 years of business

Incentive:

• can offset the employer portion of FICA payroll tax (up to 250,000 each year)

Small Companies:

• with less than $50 million in average gross receipts

Incentive:

• can offset Alternative Minimum Tax

State R&D Credits

There are multiple states that have R&D tax credits, many of which may be more valuable than the federal R&D tax credit. Numerous companies often overlook their state R&D credit, not realizing how beneficial these may be. That being said, the Georgia R&D credit can be up to 10 percent of qualifying expenses, which may be a better benefit than the federal credit for some taxpayers. For those companies that don’t have any Georgia income tax liability, they may utilize the credit against Georgia payroll tax withholding. That could potentially be a significant sum of money the company can put back into their business.

 Qualifying Activities and How to Take Advantage

Did you know that there are many activities that can qualify manufacturing companies for the R&D tax credit, including:

• Activities to create new product offerings
• Enhancing the performance, reliability, or quality of existing products
• Creating new or improving existing manufacturing processes

It is a great time for businesses to take advantage of this profitable incentive. In order to obtain the R&D tax claim, it is essential to have all proper documentation, including research activities and costs incurred. Along with the proper documentation, it is imperative to have a reputable company by your side.  With extensive knowledge of federal and state R&D credits, Swanson Reed is committed to helping our clients in all aspects of the R&D tax process. We will gladly be of service to you in any way possible.