Does software development qualify for the R&D tax credit?

Yes. Software development qualifies when it involves technological uncertainty — building new features where the approach or feasibility is uncertain, developing proprietary algorithms, creating new architectures, or solving technical problems that require experimentation. Routine maintenance, bug fixes, and cosmetic UI changes typically do not qualify.

Can SaaS companies claim the R&D credit?

Yes. SaaS companies frequently qualify. Activities like developing new platform features, building APIs, optimizing performance at scale, implementing security frameworks, and creating data pipelines often meet the IRS four-part test.

Do software companies need to track time for the R&D credit?

You need to be able to show how much time employees spent on qualifying activities. This can come from timesheets, project management tools (Jira, Asana, etc.), git commit history, or reasonable estimates based on project records.

R&D Tax Credit for Software Companies

Last reviewed October 12, 2026

Software development is one of the most common sources of qualifying R&D activities — and one of the most underutilized. If your team writes code to solve technical problems, you may be generating qualified research expenses every sprint.

What qualifies

Software development activities qualify for the R&D credit when they meet the four-part test. In practice, this means your team must be:

Developing or improving a software product, feature, or system
Facing technological uncertainty about the design, method, or capability
Evaluating alternatives through a process of experimentation (testing, prototyping, iterating)
Relying on computer science or engineering principles

Common qualifying activities

New product development

Architecting systems where scalability, reliability, or performance requirements create design uncertainty
Building data pipelines where throughput, latency, or data integrity outcomes are not predetermined
Developing machine learning models where accuracy or performance is uncertain
Creating APIs or integration layers where compatibility challenges require iterative solutions

Feature development

Implementing features that require solving new algorithmic problems
Building real-time collaboration features where concurrency and conflict resolution are uncertain
Developing search, recommendation, or ranking systems where the approach is not established
Building security or authentication systems to meet novel requirements

Infrastructure and DevOps

Designing deployment architectures for reliability and scale where trade-offs must be evaluated experimentally
Developing automated testing frameworks to handle complex integration scenarios
Building monitoring or observability systems that require solving data aggregation challenges
Optimizing database queries or storage systems where performance outcomes are uncertain

Internal tools

Developing proprietary workflow tools where the design requires solving technical problems
Building automated data processing systems where accuracy and edge-case handling are uncertain
Creating admin or operations platforms with novel technical requirements

Note: internal-use software faces additional qualification requirements under IRC Section 41(d)(4)(E). See Common Disqualifiers for details.

What does not qualify

Routine bug fixes where the solution is known
Configuration or customization using established techniques
Cosmetic UI changes with no technical uncertainty
Porting existing functionality to a new platform without facing new technical challenges
Data entry, content creation, or manual testing

Qualifying expenses for software companies

Most QREs for software companies come from employee wages:

Developer and engineer salaries (proportional to time spent on qualifying work)
Technical lead and architect time spent directly on R&D
QA engineer time spent developing test methodologies (not routine testing)
DevOps engineer time spent on qualifying infrastructure work

Contract development may also qualify at a reduced rate if the contractor performs qualifying work on your behalf and you retain the IP.

What Qualifies — the four-part test in detail
Qualified Research Expenses — what expenses count
Documentation Requirements — what records to keep
Estimate your credit — free calculator

Frequently asked questions

Does software development qualify for the R&D tax credit?: Yes. Software development qualifies when it involves technological uncertainty — building new features where the approach or feasibility is uncertain, developing proprietary algorithms, creating new architectures, or solving technical problems that require experimentation. Routine maintenance, bug fixes, and cosmetic UI changes typically do not qualify.
Can SaaS companies claim the R&D credit?: Yes. SaaS companies frequently qualify. Activities like developing new platform features, building APIs, optimizing performance at scale, implementing security frameworks, and creating data pipelines often meet the IRS four-part test.
Do software companies need to track time for the R&D credit?: You need to be able to show how much time employees spent on qualifying activities. This can come from timesheets, project management tools (Jira, Asana, etc.), git commit history, or reasonable estimates based on project records.

Find out if your business qualifies. Estimate your R&D tax credit in about three minutes — free, no account required.