PAYROLL:
Qualified small businesses may apply part or all of their R&D credit against their payroll tax liability instead of their income tax liability. When it was first introduced, the R&D credit could only be taken against income tax liability - therefore excluding small businesses and startups who had little or no income tax liability. In 2016, the R&D credit was expanded to allow businesses to take the credit against payroll tax liability, allowing newer, smaller companies to also take advantage of the credit.
Businesses that are eligible to utilize the R&D credit towards their payroll tax obligations include those that have under $5 million in gross receipts in the current year and no more than 5 years of generating gross receipts (including the current year). New businesses can use the credit to offset payroll taxes for up to five years.
INCOME:
For companies that have outgrown the payroll offset option, the R&D tax credit can be applied dollar-for-dollar against their income tax liability. The credit carries forward for 20 years, with qualified companies receiving money every year they are eligible.