According to Notice 2017-23 of the IRS, a new option enables startup companies to apply part or all of their research credit against their payroll tax liability.

The new option is suitable to any eligible small business filing its 2016 federal income tax return this tax season. This is great news for startups that have little or no income tax liability. The conditions for the new option are: (1) To have gross receipts of less than $5 million and (2) The business could not have had gross receipts prior to 2012.

According to the option, currently the credit is equal to the sum of the following:

• 20% of the excess of qualified research expenses for the year over a base amount.
• The university basic research credit.
• 20% of the qualified energy research expenses undertaken by an energy research consortium. 

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