Form 8974 “Qualified Small Business Payroll Tax Credit for Increasing Research Activities”

Many businesses personals usually use form 8974 to know the amount that qualifies a small business payroll tax credit to maximize the research activities. Especially those they can claim from the employment tax returns, such as form 941, Planilla para la Declaracion Federal Trimestral del Patrono; 944, Form 943- PR, Form 943, Form 941- PR. Employer’s Quarterly Federal Tax Return; Form 941-PR and Employer’s Quarterly Federal Tax Return; Form 941-SS, among many forms.

Therefore, according to the IRS, if you used your income tax return to claim “the qualified small business payroll tax credit for increasing research activities” against the payroll tax. You must file Form 8974 and ensure you attach it to Form 944, 943, and 941. Furthermore, your payroll tax credit must be designated on the timely filed original tax return, and it must also be chosen on Form 6765.

However, before filing Form 8974, you must file your income tax return, which makes an election claiming for your payroll tax credit featured on Form 6765. Suppose you are lost and seem not to understand Form 8974. This article has you covered.

What Is the Form 8974?

Form 8974 is a document that most business owners utilize to determine the qualified small business R&D payroll tax credit amount produced, the amount used. And the balance available to be used against the employment tax return of their company.

What is the Form 941?

Form 941 is usually used in reporting Medicare tax, Social Security tax, or income taxes, which are usually withheld from your employees’ paychecks. Besides, the employer uses this specific form to cater their share of Medicare tax or Social Security. Bear in mind that when you file Form 8974, you must attach it to Form 941.

Essential Elements of Form 8974

There are specific elements of Form 8974 you must consider; these include:

Business information

You must ensure you enter your business information, such as your name at the top of this form and your employer’s identification number (EIN). The information you provide must match the EIN and the name indicated on Form 941, and it must also match the EIN that IRS assigned to your entire business and the name of your business. Moreover, you need to find a box and indicate what specific form you are likely to take your credit from. This falls on line 12 under section 2.

Calendar year

Here, you need to enter the Calendar year as showcased on Form 941 attached to Form 8974.

Examine your box for your quarter

His is indicated at the top of your Form 8974, under the Report for this quarter. Find the correct quarter box you want to fill on Form 8974. Ensure that the quarters match quarters as showcased on Form 941.


When do you need to file the R&D credit?

This question has been asked regularly, and it is worth an answer. Well, you need to file your R&D credit via filling your credit on Form 6765, which is usually filled alongside the income tax return of your company. When you file Form 6765, you are likely to establish your credit existing for payroll taxes by filling Form 941 and 8974. On the other hand, how you file these forms is determined by your payroll provider.

When will you get the money from your R&D Credit?

After filing your income tax return, which incorporates the R&D tax credit, you will commence experiencing the R&D credit benefits quarter your Calendar. How fast you are likely to get the money depends on how quickly the IRS goes through your fillings and processes your payment. Without further ado, you are likely to see a positive response from your R&D credit from at least 6 to 8 weeks from the date and time you file Form 941 as well as 8974.

How will you receive the credit?

The mode of receiving credit usually varies because it depends on the payroll provider. Remember, some payroll providers usually will issue you a check directly from your IRS. In contrast, some payroll providers will issue you credit in terms of a line item on your given invoice. Therefore, your payroll provider is a determinant factor of how you are likely to receive your credit.

How to know if you correctly applied your R&D credit to your payroll?

There are two primary ways of knowing whether you appropriately applied the R&D credit to your payroll. First, you can tell this by checking if your credit is being used. You can achieve this by examining line 11a of Form 941. Proceed and fill this line by entering the amount of your credit featured on line 12 of Form 8974. Suppose this is a long process for you. You can opt for another alternative, which means reaching out to your payroll provider. However, this can only happen if you are not sure you will receive your R&D credit. These two ways will help you know if you made your application correctly.

What if you changed your payroll providers?

You can confidently offset your income tax liability, especially if you feature an R&D credit, which you had established your income tax return in the previous year. But you did not manage to use all of it. This means the balance will carry over to the next year for usage against income tax liability. Furthermore, it can be carried either forward for 20 years or back for one year. Likewise, any credit amount that remains unused after being carried forward for twenty years is considered expired.

What if I didn’t file Form 8974 the quarter following Form 6765?

This should not worry you because your credit will not expire; hence you can use it later. On the other hand, TriNet user rules can vary because you must inform TriNet after two months of filling your R&D.

Final Thoughts

With this comprehensive post, you are now well familiarized with Form 8974, “Qualified Small Business Payroll Tax Credit. Therefore, to ensure that everything on this form is well documented, ensure you follow the guideline above to maximize your credit. If you find any challenges with your credit, kindly reach out to your payroll provider