This bill expands and simplifies the federal research and development (R&D) tax credit for small businesses. It increases the income threshold for qualifying as a "small business" from $5 million to $10 million in annual gross receipts and makes the R&D credit refundable against payroll (unemployment) taxes, meaning small businesses can receive refunds if the credit exceeds their tax liability. The legislation also boosts the credit rate for qualified small businesses from 14 percent to 20 percent when calculating R&D expenses, and provides flexibility for newer businesses by allowing a higher credit rate in their first year of R&D activities. Additionally, the bill includes automatic inflation adjustments to dollar thresholds starting in 2027 to keep the credit relevant over time. These changes take effect for tax years beginning after December 31, 2025, and are designed to encourage smaller companies to invest more in research and development activities.
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