Recommendation

Congress should expand the refundable R&D credit to allow pre-profit start-ups to cover payroll taxes.

Details

The PATH Act of 2015 expanded access to the R&D tax credit for small businesses, permitting them to claim the credit against their employment taxes or alternative minimum credit (AMT) tax. Congress should pass the Research and Development Tax Credit Expansion Act of 2023, which allows refundable amounts to cover all payroll taxes and extends the credit to small businesses with less than $10 million in gross receipts. Currently, the bill only applies to firms with less than $5 million in gross receipts.

Keep reading:

▪ Robert D. Atkinson, “Twelve Tax Reforms to Spur Innovation and Competitiveness” (ITIF, September 2024), https://itif.org/publications/2024/09/25/twelve-tax-reforms-to-spur-innovation-and-competitiveness/.

▪ Robert D. Atkinson, “The Case for Improving America’s Research and Experimentation Tax Credit,” The Hill, May 28, 2021, https://itif.org/publications/2021/05/28/case-improving-americas-research-and-experimentation-tax-credit/.

Update

The One Big Beautiful Bill Act, signed into law by President Trump on July 4, 2025, includes a refundable credit option for small businesses and start-ups, allowing them to receive cash refunds even if they have no current income. While not a full payroll‑tax‑offset credit, this is a meaningful step toward ITIF’s goal.

Details:

▪ One Big Beautiful Bill Act, H.R. 1, 119th Congress (2025), https://www.congress.gov/bill/119th-congress/house-bill/1/text.