Free Tool · Tax Credits
This research and development (R&D) tax credit calculator estimates your federal credit with the Alternative Simplified Credit: 14% of this year's qualified research expenses above half the prior three-year average, or 6% if a prior year had none. It then checks the R&D payroll tax credit election and shows how fast up to $500,000 offsets employer payroll tax, quarter by quarter. Free, no email.
Estimates only. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.
Three short steps: this year’s research costs, the three prior years, and a payroll check. Totals are fine. Every input has a note on what counts.
Every rate and limit comes from the tax code, the current IRS forms and instructions, or the Social Security Administration. Checked September 25, 2026.
An illustration with round numbers, not a client. A software company pays $600,000 in W-2 wages to people who spend 75% of their time on qualified research, uses $20,000 of supplies, and pays an outside lab $100,000. Its QREs for the prior three years were $300,000, $350,000 and $400,000. It has $2,000,000 of gross receipts, first earned three years ago, and pays $1,500,000 in total W-2 wages to 15 employees.
| Step | Math | Amount |
|---|---|---|
| Research wages counted | 75% of $600,000 | $450,000 |
| Research supplies | Materials used in prototypes | $20,000 |
| Contract research | 65% of $100,000 | $65,000 |
| Qualified research expenses | Sum of the three lines above | $535,000 |
| Base | 50% of the $350,000 prior 3-year average | $175,000 |
| Federal research credit | 14% of the $360,000 above the base | $50,400 |
| Reduced credit (280C election) | 79% of $50,400 | $39,816 |
| Employer payroll tax per quarter | 6.2% Social Security plus 1.45% Medicare on $1,500,000 of wages, divided by 4 | $28,688 |
| Quarter 1 offset | $21,712 carried forward after it | $28,688 |
| Quarter 2 offset | $0 carried forward after it | $21,712 |
At that payroll the full $50,400 credit is used in 2 quarters. With the reduced credit, the election would be $39,816.
The calculator covers the most common case: one company, the Alternative Simplified Credit, and the federal payroll election. These can move the real number.
Form 6765 Section A figures 20% of QREs above a base built from a fixed-base percentage and average gross receipts. The IRS instructions suggest figuring both methods you qualify for.
This is a federal estimate only.
Companies under common control figure one group credit, count gross receipts together for the payroll test, and share the $500,000 limit (IRC 41(f)(1) and 41(h)(5)).
Research paid for by a customer, a grant, or a government agency is excluded to the extent it is funded (IRC 41(d)(4)(H)).
Payments to universities and other qualified organizations use separate lines (Form 6765, lines 14 to 19).
The estimate assumes the work qualifies. It does not screen out research after commercial production, adaptation, duplication, research outside the United States, or internal-use software that fails the innovation test.
It assumes a C corporation uses none of the credit against income tax this year, as when it has no taxable income.
It spreads wages evenly across employees and quarters. People who pass the $184,500 wage base during the year leave less Social Security tax in later quarters.
A company can make the election for five tax years in total, and any credit still carried forward from an earlier election is not included here.
It adds up this year's qualified research expenses (research wages times the share of time spent, plus supplies, plus 65% of contract research), subtracts half of the average for the three prior tax years, and takes 14% of what is left. That is the Alternative Simplified Credit in IRC 41(c)(4), the same math as Form 6765, lines 20 to 24.
IRC 41(c)(4)(B) sets a separate rule for a company with no qualified research expenses in any one of the three prior tax years: the credit is 6% of this year’s expenses, with no base to subtract. Form 6765 applies it on line 24 when lines 22 and 23 are skipped.
IRC 41(b)(3)(A) counts 65% of amounts paid to others for qualified research (75% for a qualified research consortium). The agreement has to be in place before the work, the work has to be done on your behalf, and you have to pay even if it fails (Treas. Reg. 1.41-2(e)).
Without the election, you reduce your section 174A research deduction by the amount of the credit. With it, the deduction stays whole and the credit drops to 79% of the full amount, reflecting the 21% corporate rate. The choice is made on the original, timely filed return and cannot be made or changed on an amended return.
The amount you can elect is the lesser of the credit and $500,000. Each quarter it first reduces the employer share of Social Security tax, up to $250,000 a quarter, and then the employer share of Medicare tax. Whatever is left carries to the next quarter, as Form 8974 lines 11 to 17 lay out.
Each quarter’s offset is capped at the employer Social Security and Medicare tax on that quarter’s wages. As an illustration, a company paying $1,000,000 a year in W-2 wages, all under the wage base, owes about $19,125 a quarter in employer Social Security and Medicare tax, so a $100,000 election takes six quarters to use.
In the first calendar quarter that begins after you file the income tax return that makes the election. The IRS example in the Form 8974 instructions: a calendar-year 2024 return filed on March 17, 2025 first claims the credit on the second-quarter 2025 Form 941.
W-2 wages for people doing qualified research, their first-line supervisors, and staff who directly support the work, such as a lab worker cleaning test equipment or a clerk compiling research data. Higher-level managers, payroll, accounting and HR do not count. A person who spends 80% or more of the year on qualified services counts in full (Treas. Reg. 1.41-2).
The payroll election is open only to a company with no gross receipts in any tax year before the five-year period ending with the credit year (IRC 41(h)(3)). Counting recent years is not enough: receipts from long ago still close the election, even if several years with none followed.
Yes. Employer Social Security tax is 6.2% of each employee’s wages up to $184,500 in 2026, the base set by the Social Security Administration. Pay above that adds only the 1.45% Medicare tax, so a team with high earners has less payroll tax for the credit to offset. The calculator caps each employee’s average pay at the base.
No. It works from totals you enter. A study documents each business component against the four-part test, ties wages to time records, and screens out exclusions such as funded research before anything is filed. Use the estimate to decide whether a study is worth doing.
No. The calculator runs in your browser, and nothing you type is sent to BEG. Site analytics record only that a result was shown and a rounded credit range.
Next Step
Under $5 million in gross receipts? The payroll credit eligibility check takes five questions and shows a result on screen.
Established company? Book a 15-minute call or call 469-412-1204.
This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.
