On Friday, May 28, 2021, the Biden administration announced the Fiscal Year 2022 budget with proposed R&D Tax Credit Plans.
Here’s what you need to know about the proposed R&D Tax Credit Plans for 2022:
1. Increasing the corporate tax rate from 21% to 28% effective for tax years beginning after Dec 31, 2021.
- This will mean a change in the F6765 form where the 280C election rate is 79%; it will not become 72%
- This will be the opposite effect from 4 years ago when the rate went from 65% to 79% – taxpayers were very pleased that they were actually getting more credits for the same QREs
- Starting next year, they will be getting fewer credits for the same QREs
- Any non-calendar year-end taxpayers will have the rates prorated between the 79% and 72% rate
2. Changes to the US ‘global minimum tax‘ (formally known as GILTI)
- Potentially large taxpayers will be paying more federal tax, so maximizing their R&D tax credits may become more beneficial for them
- By changing the qualified business asset income (QBAI) exclusion, the Administration is hoping to incentivize US corporations to invest in more tangible assets domestically, as opposed to abroad
- Changes to the global minimum tax rates
- Right now, US shareholders currently get a 50% deduction against a 21% corporate tax rate, resulting in a 10.5% effective global minimum tax rate.
- The Administration would decrease this deduction to 25%, which, combined with the corporate rate increase to 28%, would result in an effective global minimum tax rate of 21%.
- Taxpayers who may be paying more taxes in the future will be looking for more credits to offset those taxes.
3. FDII deduction repeal with the savings from this going to enhance provisions to incentivize research & development
- This has the most potential for the R&D Tax Credit
- But there are no details yet on what any amended R&D provisions may be
It is anticipated that discussions about these changes won’t likely happen until the fall of this year. Congress has been occupied with the economic recovery from the pandemic and providing support for individuals during this time, but considerations for corporations will come before the end of the year and the 2022 looming deadline. If you’re curious to learn how these changes could affect your business, schedule a call to meet with one of our Tax Engineers today.