global Tax R&D Tax Credits: A Missed Opportunity Hiding in Your Payroll September 02, 2025 Have you explored the benefits of a Research and Development (R&D) tax credit? Many companies mistakenly believe that just because they don’t wear lab coats, their activities don’t qualify for this valuable credit. This blog explores the benefits of this tax credit, what activities qualify and how you can take advantage. When Innovation Hides in Your PayrollMany companies are still unaware that their everyday payroll expenses, especially for technical employees, can qualify for the R&D tax credit. As tax deadlines and funding pressures grow, it’s more important than ever for businesses to explore credits that could improve their cash flow.If you’re paying employees to test, refine, or develop internal processes or technology, you could be missing out on thousands of dollars in tax credits. Even early-stage businesses and startups with no income tax liability can apply these credits against their payroll taxes. Failing to recognize this is one of the most common, and costly, mistakes we see.Quick TakeawaysR&D tax credits are not just for scientists Payroll wages often make up the largest portion of the creditStartups may apply the credit directly to payroll taxes for up to 5 yearsRoutine process improvements and internal innovation may qualifyMany companies miss out due to misconceptionsHow Can Payroll Help You Claim the R&D Tax Credit? Payroll is often the largest and most overlooked qualifier for the R&D credit. Qualified wages paid to employees who work on technical projects, whether directly or in support, can unlock substantial tax savings.Which Employees Might Qualify? Engineers and software developersTeam members testing or improving processesEmployees involved in technical problem-solvingStaff documenting research effortsThese employees don’t need to build new inventions. If they’re solving problems, testing improvements, or refining how things work and they’re on your W-2 payroll, — their time may qualify.How To Maximize Payroll-Based Tax credits:Track time accurately across qualifying projects. Use payroll systems (like Gusto, ADP, or QuickBooks) that support job-costing or project trackingAssign R&D-specific payroll codes or time categoriesDocument tasks that meet IRS criteriaLeverage both federal and state-level opportunities - many can be claimed concurrentlyDon't leave money on the table. This is one of the most common, and costly, missed opportunities we see. For startups with no income tax liability, the credit can offset payroll taxes directly,a significant cash flow advantage.Startup Benefits: Offset Payroll TaxesEarly-stage businesses often assume they can’t benefit because they don’t yet owe income taxes. That’s not true.If your company has less than $5 million in gross receipts and is under five years old, you can apply the credit to your payroll taxes instead — up to $500,000 per year.Real World ExampleA pre-revenue SaaS startup with $400,000 in developer wages might qualify for a $40,000 credit — a huge cash flow boost that offsets their quarterly payroll tax liabilities.Why is the R&D credit sometimes overlooked?Here’s why many companies don’t take advantage of it:Myth: "We’re not a research company."Reality: Innovation doesn’t have to be groundbreaking, routine improvements count.Myth: "We don’t have a lab."Reality: If you're solving problems, writing code, or improving internal systems, you might qualify. “If your team is innovating, even internally, you’re likely doing R&D without realizing it.” - Deborah Pallasch How Do I Know If I Qualify? Here’s a quick TestAsk yourself:Are we improving or creating a product, process, or technology?Are employees spending time on testing, development, or refinement?Do we document our technical processes and expenses?Are our gross receipts less than $5 million?If you answered yes to any of these, it’s worth exploring further.Payroll Tax Credit FAQs What types of industries qualify for the R&D tax credit?Any industry (manufacturing, construction, software, biotech, even food processing) can qualify if it involves innovation or process improvement.Can startups benefit from the R&D tax credit if they aren’t profitable?Yes, startups can use the credit to offset payroll taxes – up to $500,000 annuallyWhat Type of Documentation is Needed?You need time tracking, technical documentation, and cost breakdowns to support your claim.Can I claim both federal and state credits?Yes, many states offer an R&D tax credit in addition to the federal version, and both can be claimed concurrently.
