# What is my R&D tax credit?

Works out the federal research (R&D) tax credit by the alternative simplified credit on Form 6765: 14% of qualified research expenses above half the 3-year average, or 6% for a business with a year of none.

- Page: https://www.acalculator.org/finance/rd-tax-credit-calculator
- JSON spec: https://www.acalculator.org/finance/rd-tax-credit-calculator.json
- Version: a60571211e2c

## Default answer

Example with the default inputs (Research wages $400,000.00, Research supplies $50,000.00, Contract research paid $100,000.00, QREs last year $360,000.00, QREs 2 years ago $330,000.00, QREs 3 years ago $300,000.00, Elect the reduced credit (section 280C) No): With $515,000.00 of qualified research expenses this year, the R&D tax credit is $49,000.00.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| wages | Research wages | Wages this year for employees doing, supervising or directly supporting qualified research (W-2 box 1 amounts). |
| supplies | Research supplies | Supplies used up in qualified research this year, not land, buildings or equipment you depreciate. |
| computers | Computer rental (optional) | Amounts paid this year to use someone else’s computers off your premises for qualified research. |
| contract | Contract research paid | Amounts paid this year to outside firms or people (not employees) for qualified research; 65% of it counts. |
| p1 | QREs last year | Total qualified research expenses in the tax year before this one. |
| p2 | QREs 2 years ago | Total qualified research expenses two tax years before this one. |
| p3 | QREs 3 years ago | Total qualified research expenses three tax years before this one. |
| reduced | Elect the reduced credit (section 280C) | Check to take 79% of the credit and keep the full research expense deduction (Form 6765 line 26). |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| credit | R&D tax credit | The ASC (Form 6765 line 25), or 79% of it with the reduced credit election (line 26). |
| qre | QREs this year | Wages + supplies + computer rental + 65% of contract research (line 20). |
| average | 3-year average QREs | The QREs of the 3 preceding years ÷ 3 (shown when each of the 3 years has QREs). |
| base | Base amount | 50% of the 3-year average, the same as the 3-year total ÷ 6 (line 22). |
| excess | QREs above the base | This year’s QREs − the base amount, not below $0 (line 23). |
| fullCredit | Credit before the election | 14% of the QREs above the base, or 6% of this year’s QREs when a prior year had none. |
| reducedCredit | Credit with the 280C election | The credit before the election × 79%. |
| rule | Rule used | Which ASC rule applies: 14% over the base, or 6% when a prior year had no QREs. |

## Method

QREs = wages + supplies + computer rental + 65% × contract research. If each of the 3 prior years had QREs: credit = 14% × (QREs − 50% × the 3-year average QREs), not below $0. If any of them had none: credit = 6% × QREs. With the section 280C election: credit × 79%.

## Assumptions

- Federal research credit by the alternative simplified credit (Form 6765 Section B), not the regular credit; every amount is at most $1 trillion.
- All research is qualified research in the United States; contract research is paid to an ordinary contractor (65%), not a research consortium (75%) or a qualified small business, university or federal laboratory doing energy research (100%).
- Prior-year QREs are for full 12-month tax years. The payroll tax election for qualified small businesses, the general business credit limit and carryforwards are not included. An estimate, not tax advice.

## Worked examples

1. wages = $400,000.00, supplies = $50,000.00, contract = $100,000.00, p1 = $360,000.00, p2 = $330,000.00, p3 = $300,000.00 gives qre = $515,000.00, average = $330,000.00, base = $165,000.00, excess = $350,000.00, credit = $49,000.00, reducedCredit = $38,710.00. Source: 26 U.S.C. 41(c)(4) (14% of QREs over 50% of the 3-year average; 6% with no QREs in any one of the 3 years) and 41(b)(3)(A) (65% of contract research), https://www.law.cornell.edu/uscode/text/26/41; IRS Instructions for Form 6765 (12/2025), Section B lines 20 to 26 (line 26: multiply by 79% for the section 280C election), https://www.irs.gov/instructions/i6765.
2. wages = $200,000.00, supplies = $20,000.00, contract = $0.00, p1 = $150,000.00, p2 = $100,000.00, p3 = $0.00 gives qre = $220,000.00, credit = $13,200.00, fullCredit = $13,200.00, reducedCredit = $10,428.00. Source: 26 U.S.C. 41(c)(4) (14% of QREs over 50% of the 3-year average; 6% with no QREs in any one of the 3 years) and 41(b)(3)(A) (65% of contract research), https://www.law.cornell.edu/uscode/text/26/41 (clause (B), 6% of QREs); IRS Instructions for Form 6765 (12/2025), Section B lines 20 to 26 (line 26: multiply by 79% for the section 280C election), https://www.irs.gov/instructions/i6765.
3. wages = $250,000.00, supplies = $12,500.00, computers = $7,500.00, contract = $40,000.00, p1 = $280,000.00, p2 = $260,000.00, p3 = $245,000.00, reduced = yes gives qre = $296,000.00, average = $261,666.67, base = $130,833.33, excess = $165,166.67, fullCredit = $23,123.33, credit = $18,267.43. Source: 26 U.S.C. 41(c)(4) (14% of QREs over 50% of the 3-year average; 6% with no QREs in any one of the 3 years) and 41(b)(3)(A) (65% of contract research), https://www.law.cornell.edu/uscode/text/26/41; IRS Instructions for Form 6765 (12/2025), Section B lines 20 to 26 (line 26: multiply by 79% for the section 280C election), https://www.irs.gov/instructions/i6765 (line 26: 79%).
4. wages = $100,000.00, supplies = $0.00, contract = $0.00, p1 = $300,000.00, p2 = $300,000.00, p3 = $300,000.00 gives base = $150,000.00, excess = $0.00, credit = $0.00. Source: 26 U.S.C. 41(c)(4) (14% of QREs over 50% of the 3-year average; 6% with no QREs in any one of the 3 years) and 41(b)(3)(A) (65% of contract research), https://www.law.cornell.edu/uscode/text/26/41 (only QREs above 50% of the average count).

## FAQ

### How do you calculate the R&D tax credit?

With the alternative simplified credit: add up this year's qualified research expenses (QREs), take half of the average QREs of the last 3 years, and claim 14% of the amount above it. $515,000 of QREs against a 3-year average of $330,000: 14% × (515,000 − 165,000) = $49,000.

### What counts as a qualified research expense?

Wages for employees doing, directly supervising or directly supporting qualified research; supplies used up in it; amounts paid to use someone else's computers for it; and 65% of what you pay outside contractors for research (26 U.S.C. 41(b)). Land, buildings, depreciable equipment and overhead do not count.

### What if I had no research expenses in one of the last 3 years?

Then the credit is 6% of this year's QREs, with no base amount (26 U.S.C. 41(c)(4)(B)). $220,000 of QREs gives a $13,200 credit.

### What is the section 280C reduced credit election?

You can take 79% of the credit (Form 6765 line 26) and keep the full deduction for research expenses. Without the election you must reduce your research expense deduction by the full credit. The 79% is 100% minus the 21% corporate tax rate; the election is made on a timely filed original return.

### Why is only 65% of contract research counted?

The law treats 65% of amounts paid to outside firms or people as QREs, because part of the price pays for their overhead and profit (26 U.S.C. 41(b)(3)(A)). Payments to a qualified research consortium count at 75%, and some energy research by small businesses, universities and federal laboratories at 100%; this calculator uses 65%.

### Can a startup use the R&D credit against payroll taxes?

A qualified small business (gross receipts under $5 million and no receipts more than 5 years back) can elect to use up to $500,000 of the credit a year against its payroll taxes (Form 6765 and Form 8974). This calculator works out the credit itself, not that election.

## Sources

- 26 U.S.C. § 41, Legal Information Institute: (b)(1) and (b)(2) qualified research expenses (wages, supplies, computer use), (b)(3)(A) 65% of contract research, (c)(4) the alternative simplified credit (14% of QREs over 50% of the average QREs of the 3 preceding years; 6% when any of them had none). https://www.law.cornell.edu/uscode/text/26/41 (retrieved 2026-10-19)
- IRS, Instructions for Form 6765 (12/2025), Credit for Increasing Research Activities: Section B lines 20 and 21 (QREs this year and the 3 prior years), line 26 (the section 280C reduced credit is line 25 × 79%), the payroll tax election (up to $500,000), and contract research at 65%, 75% or 100%. https://www.irs.gov/instructions/i6765 (retrieved 2026-10-19)
- IRS, One, Big, Beautiful Bill provisions: domestic research or experimental expenditures (section 70302) are deductible for tax years beginning after December 31, 2024. https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions (retrieved 2026-10-19)