This article covers Form 6765, which is used to figure and claim the credit for increasing research activities, to elected the reduced credit under section 280C, and to elect to claim a certain amount as a payroll tax credit against the employer portion of social security taxes. Different legal entities have different rules for claiming the credit, and this article explains definitions, eligible and qualified small businesses, and the payroll tax credit election process.
What is Form 6765?
Form 6765 is used to figure and claim the Credit for Increasing Research Activities, to elect the Reduced Credit under section 280C, and to elect to claim a certain amount of the credit as a Payroll Tax Credit against the employer portion of Social Security Taxes. Eligible small businesses are defined as a corporation whose stock isn’t publicly traded, a partnership, or a sole proprietorship whose average annual gross receipts for the 3-tax-year period preceding the tax year is under $50 million. Qualified Small Businesses are defined as corporations (including S corporations) or partnerships with gross receipts of less than $5 million for the tax year and no gross receipts for any tax year before the 5-tax-year period ending with the tax year. The Payroll Tax Credit Election is an annual election made specifying the amount of research credit, up to $250,000, to be used against the employer portion of Social Security Liability.
IRS Form 6765 – Who Needs to Fill It Out?
IRS Form 6765 must be filled out by partnerships and S corporations in order to claim the credit for increasing research activities, and to elect either the reduced credit under section 280C or to elect to claim a certain amount of the credit as a payroll tax credit against the employer portion of social security taxes. Sole proprietors are generally excluded, unless the credit can be allocated to beneficiaries, such as for estates or trusts.
In order to be an eligible small business for the payroll tax credit election, the business must have had gross receipts of less than $5 million in the tax year and no gross receipts in the 5-tax-year period before that tax year. Qualified small businesses may elect to use this credit against the employer portion of social security liability, up to $250,000 annually. Partnerships and S Corporations claiming the payroll tax credit must complete Form 8974 and attach the completed form to the employment tax return.
Step-by-Step: Form 6765 Instructions For Filling Out the Document
Familiarizing yourself with the terms, definitions, and special rules laid out in the Instructions is the first step towards properly completing Form 6765 for claiming the research credit. In particular, it is important to know whether you qualify for the reduced credit under Section 280C, if you are eligible for the payroll tax credit election, whether your business is part of a controlled group of corporations or group of trades/businesses under common control, and the various limits that (including the $50 million and $5 million annual gross receipts limits) need to be met in order to qualify as an eligible/qualified small business. Filling out the form step-by-step with this information in mind should help navigate the paperwork and arrive at the most optimal outcome.
Below, we present a table that will help you understand how to fill out Form 6765.
|Information Required for Form 6765||Details|
|Research Credit||Understanding the research credit|
|Eligibility Criteria||Qualifications for the credit|
|Filing Instructions||Step-by-step guidance on completing the form|
|Optimal Outcome||Tips for achieving the best outcome|
Do You Need to File Form 6765 Each Year?
Generally speaking, partnerships and S corporations must file Form 6765 each year to claim the credit for increasing research activities. Most other entities are typically not required to file this form if their only source for the credit is a partnership, S corporation, estate, or trust. However, certain exceptions apply; estates and trusts which allocate the credit to beneficiaries whose research credit is eligible must file the form. Additionally, any entity with an average annual gross receipt of less than $50 million for the 3-tax-year period preceding the tax year of the credit is eligible to make an annual election for a payroll tax credit against the employer portion of social security taxes, limited to a maximum of $250,000 per year. Further details can be found in the official form instructions.
Download the official IRS Form 6765 PDF
On the official IRS website, you will find a link to download Form 6765. However, to make it easier for you, we are providing the link in our article, which comes directly from the official irs.gov website! Click to download: Form 6765