Federal Form 6765: Claiming the R&D Tax Credit

Federal Form 6765, the “Credit for Increasing Research Activities,” is the document businesses use to claim the research and development (R&D) tax credit. This federal incentive encourages companies to conduct research within the United States by rewarding them for investing in innovation. By offsetting a portion of research costs, the credit aims to stimulate economic growth and technological advancement.

The form serves as a worksheet to calculate the allowable credit based on a company’s research expenditures. It is not a standalone filing but is attached to a business’s annual income tax return. This provides a structured way for businesses to translate their qualifying activities into a direct reduction of their tax liability.

Who Can Claim the Research Credit

To claim the research credit, a company’s activities must satisfy the “Four-Part Test.” The eligibility is determined by the nature of the activity, not the size or industry of the business, making it accessible to a wide range of companies.

The first criterion is the “Permitted Purpose” test. This requires the research to be aimed at creating a new or improved business component, which can be a product, process, computer software, technique, formula, or invention. The goal must be to enhance functionality, performance, reliability, or quality.

The second part of the test is that the research must be “Technological in Nature.” This means the activities must fundamentally rely on principles of the physical or biological sciences, engineering, or computer science. A project to develop a more durable composite material for manufacturing would qualify, as it is based on principles of engineering and materials science.

The third requirement is the “Elimination of Uncertainty.” At the project’s outset, the company must face uncertainty about the capability or method for developing the business component, or its appropriate design. The research is undertaken to discover information that would remove this uncertainty.

Finally, the activity must involve a “Process of Experimentation.” This involves a systematic evaluation of one or more alternatives to achieve a result where the method of achieving that result is uncertain at the beginning. This can include modeling, simulation, or systematic trial and error to test hypotheses.

Identifying Qualified Research Expenses (QREs)

Before a business can calculate its R&D credit, it must identify its Qualified Research Expenses (QREs). These are the specific costs incurred as part of the qualifying research activities. QREs are the sum of in-house research expenses and contract research expenses.

In-House Research Expenses

In-house research expenses consist of costs incurred directly by the company. This category includes wages paid to employees for performing qualified services, which involve the actual conduct, direct supervision, or direct support of research. It also includes the cost of supplies used in the research process and amounts paid for the right to use computers in the conduct of qualified research, such as cloud computing and development servers.

Contract Research Expenses

Payments made to third parties for contract research can be included as QREs, but with a limitation. Only 65% of the amount paid to a contractor for qualified research is eligible for the credit. This percentage can increase to 75% if the research is conducted by a “qualified research consortium.”

For these expenses to qualify, the business claiming the credit must retain substantial rights to the research results. The company must also bear the economic risk, meaning payment to the contractor cannot be contingent on the success of the research. A formal agreement should be in place before the research begins.

Calculating the Credit and Completing the Form

Once a business has totaled its QREs, it must complete Form 6765. The form requires a detailed breakdown of expenses and activities, with Section G being mandatory for most filers for tax years 2025 and beyond. After providing these details, a business calculates the credit using one of two methods.

The first option is the Regular Credit, calculated in Section A. This method provides a credit equal to 20% of the current year’s QREs that exceed a calculated “base amount.” The base amount calculation is complex, involving historical gross receipts and research spending.

The more common method is the Alternative Simplified Credit (ASC), calculated in Section B. The ASC is 14% of the amount by which the current year’s QREs exceed 50% of the average QREs from the three preceding tax years. If a company has no QREs in any of the prior three years, the credit is 6% of the current year’s QREs.

A feature for many small businesses is the payroll tax credit election, made in Section D. A Qualified Small Business (QSB) can elect to apply up to $500,000 of its R&D credit against its payroll taxes. A QSB is a business with less than $5 million in gross receipts for the current year and no gross receipts for any year preceding the last five years.

How to File Form 6765 and Claim the Credit

After completion, Form 6765 must be filed as part of the business’s annual income tax return, such as Form 1120 for a C corporation or Form 1065 for a partnership. The form must be included with a timely filed return, including extensions, to be valid.

The total credit amount from Form 6765 is carried to Form 3800, General Business Credit. Form 3800 consolidates various business credits and applies them against the company’s tax liability. The R&D credit becomes part of the total general business credit that reduces the income tax owed.

If the business elected the QSB payroll tax credit, it must also file Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This form is filed quarterly with the employer’s payroll tax return, typically Form 941. The credit reduces the company’s payroll tax deposits, first against the employer’s share of Social Security tax and then against Medicare tax, with any unused credit carried forward.