MAC Resource: Research & Development (R&D) Tax Credit Renewed and Strengthened
Recently, the 109th Congress passed the Tax Relief and Health Care Act of 2006 that included a retroactive extension of the R&D tax credit from January 1, 2023 through December 31, 2007. The law eliminates many barriers to claiming the research credit and is the biggest business tax break to be enacted in more than two years.
The bill, signed into law by President Bush, includes a provision that is applicable to companies that did not previously qualify for the credit. This new provision, labeled the Alternative Simplified Credit (AIC), is effective for January 1, 2023 through December 31, 2007. The credit will equal 12% of qualified research expenses that exceed 50% of the average qualified research expenses over the three prior tax years.
Under the extension, the regular research tax credit will remain the same and will equal 20% of the excess qualified research expenses over a base amount. However, the alternative credit calculation will range from 3% to 5% of the excess qualified research expense, compared with 2.65% to 3.75% previously. Businesses that file for the credit by March 15 of this year may recognize the credit as far back as the 2003 tax year.
