US R&D Tax Credit & Payroll Offset Calculator (Form 6765)

US R&D tax credit (ASC method) and the payroll tax offset

Under the Alternative Simplified Credit (ASC) of section 41, the credit equals 14% of the year's qualified research expenses (QREs) above half the average of the three prior years, or 6% of QREs with no history. A startup under 5 years old with less than $5M in gross receipts can apply it against employer payroll taxes, up to $500,000 a year. With the default values, $962,000 of QREs give a $96,180 credit.

How the tool calculates

• QREs = W-2 engineer wages + R&D supervisor wages + 65% of US contractor costs + cloud and supplies.
• ASC credit = 14% × (QREs − 50% × average QREs of the 3 prior years); 6% × QREs if any one of the three prior years has no QREs.
• Net credit with the 280C election = gross credit × 79%.
• Payroll offset = min(gross credit; $500,000), if the startup box is ticked, gross receipts < $5M and the company is ≤ 5 years old.

Example with the default values

$650,000 of engineers, $120,000 of supervision, $180,000 of contractors counted as $117,000, $75,000 of cloud: $962,000 of QREs. History of $400,000, $550,000 and $700,000: average $550,000, base $275,000. Credit: 14% × 687,000 = $96,180, or 10% of QREs, or $75,982 after the 280C election. With $2.5M of gross receipts and 3 years in business, the full $96,180 can offset payroll taxes. With no history the credit would be $57,720.

Limits

• Only the ASC method is offered.
• In practice the offset is also capped each quarter by the employer payroll taxes due.
• No state credits and no interaction with the immediate deduction of research expenses under section 174A, restored for tax years beginning after 31/12/2024.

Sources and dates: Instructions for Form 6765 (revision 12/2025: 65%, 79%, section 174A); IRS, qualified small business payroll tax credit ($500,000 since the Inflation Reduction Act, tax years beginning after 31/12/2022); P.L. 119-21 of 04/07/2025, section 70302; Internal Revenue Code, section 41 (checked 14/10/2026). An estimate, not a substitute for a tax adviser.

Frequently Asked Questions

Which expenses count towards the US R&D tax credit?

Wages of people who perform, directly supervise or support the research, supplies consumed, and the right to use computers for research. Contractor costs count at only 65%: $180,000 billed becomes $117,000 of QREs. Research carried out outside the United States is excluded.

How can a startup use the R&D credit against payroll taxes?

A company with gross receipts under $5M and no receipts before the last 5 tax years can elect on Form 6765 to apply up to $500,000 a year against the employer share of Social Security and then Medicare. The offset starts in the quarter after the income tax return is filed, using Form 8974.

What does the section 280C election change?

It reduces the credit to 79% (100% − the 21% corporate tax rate), and in return the research expense deduction is not reduced by the credit amount. In the default example, a $96,180 gross credit becomes $75,982.

What is the credit with no R&D expense history?

If the company had no QREs in any one of the three prior years, the ASC credit is 6% of the year's QREs. For $962,000 of QREs that gives $57,720, against $96,180 with the default history.

Is this tool really free?

Yes, all tools on Kristools are 100% free and accessible without registration.

Is my data protected?

Yes. All processing is performed directly and securely inside your browser. No personal data is sent to our servers.