In part, the federal Research and Development credit (R&D Tax Credit) is meant to incentivize the development of innovative technology within the United States. This dollar-for-dollar tax credit typically comes out to about 5 to 7% of R&D spend, which includes wages allocated to R&D activities in the US, supply costs used in the R&D process and US-based outside contractor costs in connection with R&D activities. In December 2015, the Protecting Americans from Tax Hikes (PATH) Act was enacted which made the R&D tax credit permanent. In addition, beginning in 2016, the credit can be used to reduce Alternative Minimum Tax (AMT) for companies (and the owners of flow thru entities) with under $50 million in gross receipts (3-year prior average). Also beginning in 2016, the PATH Act provides that companies meeting its definition of a startup company will be able to use federal R&D tax credits to reduce a significant portion of their federal payroll taxes (specifically, the employer’s Social Security portion of FICA). In order to qualify for this election, a company needs to have under $5 million of gross receipts in the respective year and can have no gross receipts prior to the five year period ending with the year in question. A qualifying company can make this election for up to five years, and it can use up to $250,000 of R&D tax credits per year to reduce payroll taxes.