The Senate Finance Committee has passed bipartisan legislation to allow startup companies and small businesses to access the successful Research and Development Tax Credit. The committee passed two versions of the Startup Innovation Credit — one will allow innovative startups to claim the R&D tax credit against their payroll taxes. The second version will allow small business owners to claim the R&D tax credit against their Alternative Minimum Tax liability. Working with Senators Enzi and Roberts, U.S. Senator Chuck Schumer (D-N.Y.) introduced an amendment to the annual tax-credit extension bill that included both approaches. The amendment passed the Committee by voice vote.
“Companies that invest in research and development are investing in new products and processes that grow the economy and create quality, middle class jobs that our country needs right now,” Senator Coons said. “The successful Research and Development Tax Credit has helped tens of thousands of American companies invest in job-creating innovation, but startups haven’t been allowed to take advantage. Firms younger than five years old have been responsible for the overwhelming majority of our new jobs in recent years, and they are driving our nation’s economic recovery by taking risks to turn their ideas into products. Three years after I first introduced legislation to open up the R&D Tax Credit to startups, I am proud of the progress we made today and deeply grateful for the partnership of Senators Enzi and Schumer, and all of my colleagues who have cosponsored this idea over the years. Progress on this legislation is proof that we can still work together across party lines to help grow our economy.”
“When startup businesses can keep more of their hard-earned cash, they’re able to create the jobs our recovering economy needs,” Senator Enzi said. “This bill provides a great addition to the current R&D tax credit by helping small businesses stay afloat during their early years.”
“Startup companies are the job-creating engines of our future, but they face immense challenges getting their businesses off the ground to the point of profitability. As the R&D Tax Credit exists now, these emerging companies are behind the eight ball, without access to the same job-producing programs that already-established companies enjoy,” Senator Schumer said. “This bill will make sure startups in New York and throughout the country can devote more resources to innovation and creating jobs, and I will fight for its passage in the full Senate.”
To qualify for the Startup Innovation Credit, a company must be less than five years old and have less than $5 million in gross receipts. Since many young companies invest heavily in research and development in their first few years and don’t have income tax liability, they are unable to claim a federal income tax credit, like the R&D Tax Credit. In fact, according to the Government Accountability Office, more than half of the credit claimed by companies each year goes to firms with $1 billion or more in receipts. With the Startup Innovation Credit, as passed by the Senate Finance Committee, a new company that lacks the income tax liability necessary to claim the R&D Tax Credit would instead be able to claim the credit in the following year by reducing its employer-side employment taxes by an equivalent amount up to $250,000, or by reducing its Alternative Minimum Tax liability.