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The rules in 2026
Section 41 gives a credit for increasing research activities: generally 20% of qualified research expenses above a base amount, or 14% under the alternative simplified credit. Qualified research expenses are wages for people doing, directly supervising or supporting the research, supplies used in it, and 65% of contract research. Each project, or business component, must pass the four-part test in section 41(d): a permitted purpose, technological uncertainty, a process of experimentation for substantially all of the activities, and reliance on the hard sciences, engineering or computer science.
Section 174A, added by the 2025 tax law, lets businesses deduct domestic research and experimental costs immediately for tax years beginning after 2024; foreign research is still amortized over 15 years. Under section 280C, you either reduce that deduction by the credit or elect a reduced credit of 79%. Qualified small businesses can apply up to $500,000 a year of credit against employer payroll taxes under section 41(h).
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