Qualified Wages Related to Direct Support, March 2021

Missing R&D Expenses: Don’t forget Support Activities

If a company files for the research credit, they would be aware of the “Four-part” test for qualified activities. Part one, a qualified activity has a purpose to create or improve a company’s product or process; part two, these improvements are made through the application of hard sciences principles and techniques; part three, there are uncertainties as to how to use or design the improvement with the hard sciences; and part four, there needs to exist a process to evaluate design and development approach in order to mitigate the improvement uncertainties.

What companies might miss are the types of expenses that can relate to qualified activities, specifically wage expenses. The eligible research expenses for wages fall into three categories of qualified services: those engaged in qualified research; those who are directly supervise, and those who directly support.

Most of the time, companies understand which employees are engaged in qualified activities and even who supervises them. The missed opportunities are usually with employees who directly support research activities. Companies should be willing to look past employees who are directly involved in qualified activities, in order that they not miss employees who, while not fully engaged in a substantially all capacity, are still performing qualified activities.

The R&D Credit states that direct support is anyone who is helping support either those engaged in qualified activities or directly supervising them. Direct support can include employees like technicians, project managers, quality assurance personnel, and assistants. The R&D Credit gives further examples:

  • A secretary for typing reports;
  • A laboratory worker for cleaning equipment;
  • A clerk for compiling research data;
  • And a machinist for machining parts for a prototype model.

Most companies at first glance would probably not have selected a secretary or machinist wages as qualified for the R&D Credit. The important aspect to those supporting employees is that it is direct support. General administrative work would not be qualified, things like accountants preparing checks for engineers, or janitors cleaning the research laboratory.

A good rule of thumb is to look around the employees who are directly involved and see if there are other employees who support the work. It might be surprising what types of employees can qualify for supporting R&D activities.

The R&D Credit provides an opportunity to reduce tax liability. In order to maximize the R&D Credit impact to don’t forget to capture all the expenses that should qualified, especially wages that are direct support.  To learn if you’re eligible for the R&D Credit or have more questions related to qualified direct support, please contact CFO Services.

CFO Services Can Help With Your Research Credit & Tax Incentive Needs

The R&D Credit provides an opportunity to reduce tax liability. In order to maximize the R&D Credit impact to don’t forget to capture all the expenses that should qualified, especially wages that are direct support.  To learn if you’re eligible for the R&D Credit or have more questions related to qualified direct support, please contact CFO Services.

Through knowledge and perspectives gained working with virtually every industry and type of client (Fortune 500, medium-size and small companies), CFO Services has committed to a strategy of providing a depth of knowledge in a narrow field of focus: business incentives and credits. Providing tried and tested methodologies, our professionals can help almost any business research, identify and comply:

  • Research and Development Credits
  • Multi-State Tax Incentives and Credits
  • State Sales and Use Tax
  • Strategic Alliances
  • Workforce Training

RCM Summary: QREs Documented, February 2021

Each quarter, CFO Services highlights a certain feature or aspect of its RCM tool for Research Credits.  This quarter, CFO Services is highlighting how to view the scope of documentation captured to help determine if the projects qualified are substantiated.  This helps clients determine the scope of what activities have or need document support while maintaining efficiencies. If you would like to learn more about CFO Services’ RCM tool, please visit our Newsletter archive.

Project Details

Percentage of QREs Documented: This graph on the dashboard shows the percentage of projects that are documented for qualitative purposes. This donut chart is being created from a column in the project listing that is checked if there is qualitative descriptions in the list Once a project has been documented, that field can be marked “yes” to show those project QREs in the graph’s percentage as covered.  In the Project listing there are columns for the Project Purpose, and descriptions for the 4 tests of the R&D Credit, Technical Uncertainty, Process of Experiementation, Business Component and Technical in Nature. You can see the Qualitative Project Listing example below. This List can also be exported to Excel when you click on an item and at the top tab under “List” click on the “Export to Excel”.

This project data is all taken from conversations with SME’s or from contemporaneous documentation. The documents that are received can be uploaded to a document library on the site and connected to the specific projects that they help support.

When viewing a project individually (see below) you can see all the documents associated to the project under the tab “Project Documentation”.  Along with documents you can see additional project details, such as time that employees have put to that specific project as well as any expenses that are associated with the project.

CFO Services Can Help With Your Research Credit & Tax Incentive Needs

The R&D Credit provides an opportunity to reduce tax liability. In order to maximize the R&D Credit impact to don’t forget to capture all the expenses that should qualified, especially wages that are direct support.  To learn if you’re eligible for the R&D Credit or have more questions related to qualified direct support, please contact CFO Services.

Through knowledge and perspectives gained working with virtually every industry and type of client (Fortune 500, medium-size and small companies), CFO Services has committed to a strategy of providing a depth of knowledge in a narrow field of focus: business incentives and credits. Providing tried and tested methodologies, our professionals can help almost any business research, identify and comply:

  • Research and Development Credits
  • Multi-State Tax Incentives and Credits
  • State Sales and Use Tax
  • Strategic Alliances
  • Workforce Training