Pre-revenue or early-revenue? A qualified small business may be able to apply up to $500,000 per year of this credit against employer payroll taxes instead of waiting for an income tax bill - see the §41(h) payroll tax offset.
How the estimate is computed
| Input | What the tool does with it | What it is not |
|---|---|---|
| R&D payroll and the R&D time slider | Multiplied together to give qualified wages. | Not a qualified-services determination. §41(b) counts §3401(a) wages for direct performance, direct supervision, and direct support only, allocated on a stated method. |
| Supplies consumed in R&D | Added to the base in full. | Not a screen for the statutory definition: land, improvements, and depreciable property are never supplies. |
| Cloud and compute for R&D | Added to the base in full. | Not an allocation. Production hosting and software subscriptions are not computer rental, and one consolidated invoice is not a QRE. |
| U.S. contract research | Included at 65%, the §41(b)(3)(A) rate. | Not a rights-and-risk screen for funded research, and not a test of where the work was performed. |
| The four inputs together | Totalled as an illustrative QRE base, then shown as a 6-10% federal credit band. | Not a computation of either method. A study computes the Regular Credit and the ASC precisely and claims the stronger supportable one; some profiles land below the band. |
| Your marginal tax rate | Applied to the §174A deduction to show a first-year tax value. | Not added to the credit. The credit and the deduction are different mechanisms, and this tool keeps them separate on purpose. |
How this estimate works - and where it stops
- QRE = qualified wages (your wages × R&D time) + supplies + cloud/compute + 65% of contract research performed in the U.S. on your behalf.
- Federal credit is shown as an illustrative 6-10% of QRE. Some profiles land below that band - a first-time claimant on the ASC's 6% rate nets roughly 4.7% of QRE after the §280C(c) reduction. A real study computes the Regular and Alternative Simplified methods precisely and claims the stronger supportable one (your preparer files the return) - see calculation methods.
- §174A deduction is a conservative floor that reuses the credit’s QRE base. The real §174A domestic R&E base is computed separately and is usually broader - contract research, for example, generally deducts in full under §174A even though only 65% counts toward the §41 credit - and §280C coordination can adjust the credit/deduction interplay. The “tax value” applies the rate you entered.
- The credit and the deduction are different mechanisms. This tool keeps them separate on purpose and does not add them into a single “savings” number.
- It assumes the activities you are pricing already qualify. Whether they do is the four-part test, and it is the question an examiner asks first.
Where the shortcuts get resolved properly
Every simplification above has a page behind it. Industry-specific activity lists live on the industry guides, and the deduction side sits on §174A.
Calculation Methods
Why a real credit is Regular vs. ASC - and where §280C changes the net.
Read the guideQualified Research Expenses
Which wages, supplies, cloud, and contract dollars belong in the base.
Read the guidePayroll Tax Offset
How a qualified small business takes the credit as payroll-tax cash.
Read the guideThe Four-Part Test
The threshold question the estimator has to assume you already pass.
Read the guide