The “Furthering Our Recovery With American Research & Development Act” (“FORWARD”) legislation introduced by Senator Chris Coons would further expand support for American businesses investing in the research and development of new and advanced products and technologies. The proposed changes to the R&D Tax Credit (IRC Sec. 41) have the potential to not only expand the pre-existing national R&D landscape, but also guide COVID-19 recovery for American businesses by encouraging valuable innovation like vaccine development, medical research, and cutting-edge technology. The IRS’ support towards these companies will be crucial in rebuilding a stronger economy.
Believing that startups and businesses driving research and development will help lead the country’s recovery from the COVID-19 crisis, Sen. Coons’ bill (S.3593) proposes the following expansion to the R&D Tax Credit:
1) Expands Access to the R&D Tax Credit
FORWARD expands access to the R&D tax credit for new small and medium sized businesses in following ways:
- Increases annual gross receipts ceiling from $5M to $20M.
- Increases the Payroll Credit cap from $250K to $1M per year.
- Gross receipts of de minimus amounts of up to $25,000 do not trigger the eight (8) year eligibility period.
- Increases Payroll Tax Credit eligibility window from 5 years to 8 years.
2) Supports R&D Related Training
The Act expands the definition of Qualified Research Expenses to include R&D-related employee training costs. Qualified employee training expenses can include wages paid or incurred to an employee during any training required for the employee to directly perform, supervise, or support qualified research services.
3) Expands R&D Tax Credit Benefit for Domestic Manufacturers
The Act also incentivizes American manufacturing by introducing an increase in the R&D Tax Credit for domestic manufacturers. Companies with majority of their gross receipts from manufacturing their products in the US will receive increased tax benefits.
The FORWARD Act will benefit American business in many ways. Incentivizing domestic manufacturing with the expanded R&D Tax Credit has the potential to bring manufacturing back to the U.S. from overseas and strengthen the U.S. economy through job creation. It may also reduce reliance on international supply-chains that are vulnerable to interruptions caused by global disruptions such as COVID-19. Furthermore, expanding the Research & Development for startups and small businesses will certainly encourage technological innovation.
Founded in 1997, Leyton is a global innovation funding consultancy dedicated to helping our clients improve their business performance. In the US, our specific expertise is in optimization of Federal and State Research and Development (R&D) Tax Credits.
As a business, we want to help unleash our clients potential and be a strategic partner in their evolution and growth. We help find openings in processes and ways of working that others can’t see, then unlock these opportunities to create value efficiency.
