“To amend the Internal Revenue Code of 1986 to expand eligibility and increase simplification of the research credit for certain small businesses.”
No CRS summary available for this bill.
This section expands the refundable research credit available to qualified small businesses under IRC §41(h)—which allows eligible employers to elect to apply up to $500,000 of their research credit against the employer share of Social Security taxes under §3111(b)—effective for taxable years beginning after December 31, 2025, by (1) providing for cost-of-living adjustments after 2026 to the dollar amounts limiting the elected credit amount, using 2025 as the base year and rounding increases to the nearest $100; (2) allowing the credit to also offset Federal unemployment taxes under §3301, with conforming changes to credit advance payment and recoupment rules; and (3) broadening the definition of qualified small business by increasing the average annual gross assets threshold to $10 million (from $5 million), replacing the prior no-gross-receipts test over the prior 5 taxable years with a requirement of no more than $25,000 in gross receipts in any taxable year preceding the 10-taxable-year period ending with the taxable year, and directing use of §448(c)(3) rules (ignoring its gross receipts threshold) for such determination while excluding certain capital contributions but including customer receipts.
This section establishes special rules under the alternative simplified credit (ASC) of the research tax credit for qualified small businesses (as defined in IRC §41(h)(3)), increasing the credit rate to 20% (from 14%) of qualified research expenses exceeding 50% of the average for the three preceding taxable years; providing a 20% rate (from 6%) of current-year expenses for a taxpayer's first year of such expenses; and, for other years where the fixed-base percentage applies, allowing an election for either a 10% rate (from 6%) of current-year expenses or to disregard any prior year in the three-year average with no such expenses. (As background, the ASC incentivizes business research and experimentation by allowing a simpler calculation than the regular research credit.) The changes apply to taxable years beginning after December 31, 2025.