With the signing of the Consolidated Appropriations Act (CAA) in December 2020, the interplay with ERC and R & D credit wages was addressed stating that any 2021 wages used for R & D Tax Credit CANNOT also be used for ERC. For 2020 there is no interplay.
- In 2020, businesses that employed more than 500 individuals, the ERC could only be earned on wages paid to employees who were not performing services. Since they were not performing any services, they could not be engaged in “qualified research activities.” If your R&D expense tracking system treats the hours of some research personnel as “qualified research activities” by default, you’ll need to review their time to make sure that wages paid during a period when they were not performing services are backed out of the R&D tax credit calculation.
- In 2021, the revised rules of the ERC specifically exclude any wages used to determine the ERC from being treated as qualified for R&D tax credit purposes. Employers claiming both credits will need to make sure that there is no overlap between wages used to calculate the ERC and wages used to calculate the R&D tax credit.
What Qualifies for the R&D Tax Credit?
If your company does any of the following, your business likely qualifies for the R&D Tax Credit:
- Develops or designs new products or processes
- Enhances existing products or processes
- Develops or improves upon existing prototypes and software
Questions? Contact one of our tax experts at (888) 388-1040.
