Tax
R&D tax credit calculator
Estimate your federal research credit under the Alternative Simplified Credit, and how much of it can offset payroll tax.
Estimate your federal research credit under the Alternative Simplified Credit, and how much of it can offset payroll tax.
An estimate under the Alternative Simplified Credit, using IRS rules as published on 18 August 2026. It is not a substitute for a study: which of your costs are qualified research expenses is the part that needs a human, and it is where most of the value is won or lost.
The federal research credit rewards money spent developing or improving a product, process, or software. For a pre-revenue company the important part is not the credit itself but the payroll election: an income-tax credit is worth nothing to a company that owes no income tax, and the election turns it into cash against payroll instead.
Most startups use the ASC, because the regular credit needs gross-receipts history from the 1980s that a young company does not have. The ASC is 14% of current-year qualified research expenses above 50% of the average of the prior three years.
Where there were no qualified research expenses in any one of the three preceding years, the rate is 6% of current-year QREs with no base subtraction. That is the case for most companies claiming for the first time.
The work has to meet a four-part test: it must be technological in nature, aimed at a permitted purpose, resolve technical uncertainty, and involve a process of experimentation. Ordinary product iteration with no technical uncertainty does not qualify, however hard it was.
This is the part that matters most to an unprofitable company. A qualified small business can elect to apply the credit against payroll tax instead of income tax.
| Test | Threshold |
|---|---|
| Gross receipts this tax year | Under $5 million |
| First year with gross receipts | Within the 5-tax-year period ending with this year |
| Maximum annual election | $500,000 |
| Applied first against | Employer Social Security, up to $250,000 per quarter |
| Remainder against | Employer Medicare share |
The $500,000 ceiling came in with the Inflation Reduction Act for tax years beginning after 31 December 2022; before that it was $250,000.
The arithmetic here is the easy part. The value is won or lost in deciding which costs qualify, and that needs someone to look at what your engineers actually worked on. An estimate built on a generous reading of your payroll is not a credit — it is an audit risk. Our R&D credit service does the substantiation properly.
Where these numbers come from