“The Innovators Job Creation Act,” bi-partisan legislation co-sponsored by Senators Chris Coons (D-Del.) and Pat Roberts (R-Kan.), was introduced in the Senate this week. This legislation would promote innovation by making the R&D tax credit more accessible to small startup firms. Under current law, the R&D tax credit can only be offset against federal income tax liability. However, because most startups do not generate net income in the early years, they have no federal income tax liability and, therefore, are unable to use this important tax credit. This legislation includes three provisions that would allow more startup firms to actually use this credit:
- Startup firms would be allowed to offset their R&D tax credit against federal payroll taxes. While most startups do not pay current federal income taxes, they do have employees for which they incur payroll taxes.
- Investors in pass-through startup firms (for example, partnership, S corporations, etc.) would be allowed to offset the R&D credit against their Alternative Minimum Tax. Currently, the R&D tax credit can only be offset against federal income tax liability.
- The Alternative Simplified Credit (a simplified R&D tax credit) could be claimed on an amended return. Currently, businesses can only claim the traditional, more complicated R&D tax credit on an amended return.
Prior to introduction of this bill, CompTIA joined other TechVoice members in a letter to the co-sponsors stating our support for this bill. CompTIA has long supported efforts to encourage research and innovation, and we strongly support the commonsense provisions contained in “the Innovators Job Creation Act.”
