Qualified small employers who want to apply a new research tax credit against Federal Insurance Contributions Act liabilities are to report the credit amounts on the 2016 Form 6765 in Section D, according to Judy Davis, a senior IRS tax analyst.
Davis said that the draft of 2016 Form 6765, Credit for Increasing Research Activities, includes a new Section D to report the tax credit. Section D is used to elect the entire research credit that employers want to use as a payroll tax credit for the employer's share of FICA and employers should enter the amounts on line 42 or 44 in Section D, she said.
Employers should take amounts from Form 6765 and carry those amounts to Line 5 of a newly developed bridge document, Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, which is available as a draft form for 2016. Form 8974 is a bridge form because it is used to identify amounts claimed on Form 6765 that can be reported on Form 941, Employer's Quarterly Federal Tax Return, for credit against FICA tax liability, Davis said. After employers complete Form 8974, the amount on Line 12 should be carried over to Form 941, Line 11, where the credit may be applied against the employer's share of FICA liability, Davis said.
The credit amounts are reported on Form 941, Line 16 (for monthly scheduled depositors), or Form 941, Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors. For either Line 16 or Schedule B, to apply the credit, the first listed liability amount is reduced by the amount of the credit for that pay period. Any additional amounts to be credited are carried forward to the next liability listed in order on either line 16 or schedule B for that Form 941 submission. Amounts also may be carried over to apply against liabilities in future quarters "until that credit is gone," Davis said.
Form 8974 must be attached, either as a portable document format (PDF) file if the taxpayer is filing electronically, or as a paper document to Form 941.
The draft Form 6765 is available here.
The draft Form 8974 is available here.