Does my business have to be a tech company to claim the R&D credit?

No. The credit applies across manufacturing, engineering, software, food and beverage, agriculture and more. The test is whether you're resolving technical uncertainty through experimentation to develop or improve a product, process or software — not whether you have a lab.

We're not profitable yet. Can we still benefit?

Often yes. A qualified small business (generally under $5M in gross receipts and within its first five years) can apply up to $500,000 of the credit against employer payroll taxes instead of income tax — delivering cash savings even with no income-tax liability.

What records do I need to support the credit?

Contemporaneous documentation tying employees, hours, supplies and contract research to specific qualifying projects, and showing how each meets the four-part test. Records created as the work happens are far stronger than reconstructions.

How large can the payroll-tax offset be?

A qualified small business can apply up to $500,000 of the R&D credit per year against employer payroll taxes — first against the employer share of Social Security tax, then against the employer share of Medicare tax. The election is made on Form 6765 and applied on Form 8974 with your quarterly Form 941, delivering cash savings even with no income-tax liability.

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Business Tax Credits

The R&D Tax Credit for Small Businesses: How It Works and Who Qualifies

The R&D credit rewards businesses that develop or improve products, processes, and software — and it's far more accessible to small businesses than most owners realize. A manufacturer, a software firm, even a food company reformulating a recipe may qualify.

SMAART Tax Team

April 6, 2026

5 min read

|Reviewed by Lisa Terrell, Enrolled Agent