Tax Code Reference
The federal R&D tax credit is governed primarily by IRC Section 41. This page collects the key provisions, rates, and thresholds in one place with statutory citations.
All figures on this page are sourced from a controlled registry and display their legal authority. Figures marked
are placeholders pending professional verification and are not yet confirmed.
Credit calculation methods
Alternative Simplified Credit (ASC)
| Item | Value | Authority |
|---|---|---|
| Standard ASC rate | 14% | IRC Section 41(c)(5)(A) |
| ASC rate with no prior-year QREs | 6% | IRC Section 41(c)(5)(B) |
The Alternative Simplified Credit compares current-year qualified research expenses against the average of the prior three years. It is the more commonly used method for companies without extensive historical records.
Regular Research Credit (RRC)
| Item | Value | Authority |
|---|---|---|
| Regular credit rate | 20% | IRC Section 41(a)(1) |
| Fixed-base percentage floor | 3% | IRC Section 41(c)(3)(B) |
The Regular Research Credit compares current-year QREs against a base amount derived from the taxpayer's historical research spending relative to gross receipts. It can produce a larger credit for companies with strong historical records.
Qualified research expenses
Contract research
| Item | Value | Authority |
|---|---|---|
| Contract research inclusion rate | 65% | IRC Section 41(b)(3)(A) |
Payments for qualified research performed by a contractor on behalf of the taxpayer are included as QREs at a reduced rate to reflect that the taxpayer did not incur the full cost of the research directly.
Payroll tax offset
Qualified small business election
| Item | Value | Authority |
|---|---|---|
| Maximum annual payroll tax offset | $500,000 | IRC Section 41(h) |
| Gross receipts eligibility limit | $5,000,000 | IRC Section 41(h)(2) |
| Maximum business age | 5 | IRC Section 41(h)(2) |
Qualified small businesses may elect to apply the R&D credit against payroll taxes instead of income taxes. This is particularly valuable for startups and pre-revenue companies. See Payroll Tax Offset for details.
Section 174 — R&D expense treatment
| Item | Value | Authority |
|---|---|---|
| Domestic amortization period | Immediate deduction | IRC Section 174(a)(2)(A) |
| Foreign amortization period | 15 years | IRC Section 174(a)(2)(B) |
IRC Section 174 governs whether research and experimental expenditures are deducted immediately or amortized. This is a separate provision from the Section 41 credit. See Section 174 for more detail.
Amended returns
| Item | Value | Authority |
|---|---|---|
| Lookback period | 3 years | IRC Section 6511(a) |
Taxpayers may file amended returns to claim the R&D credit for prior years within the statute of limitations. See Amended Returns.
Source material
- 26 U.S.C. Section 41 — Credit for increasing research activities
- 26 U.S.C. Section 174 — Research and experimental expenditures
- 26 U.S.C. Section 6511 — Limitations on credit or refund
Related pages
- What Qualifies — the four-part test
- Qualified Research Expenses — what expenses count
- Payroll Tax Offset — the qualified small business election
- Estimate your credit — free calculator