Form 6765 is the IRS form for the federal research credit under Section 41. A SaaS company uses it to figure the credit (usually with the alternative simplified credit: 14% of this year's qualified research expenses above half the three-year average), to make the Section 280C reduced-credit election, and, if it is a qualified small business, to elect to apply up to $500,000 of the credit against payroll tax. For tax years beginning after 2025, Section G is required: you report your qualified research expenses by business component, unless you take the payroll election or your claim is small. For a calendar-year company, the first return this hits is the 2026 Form 1120 filed in 2027.
This is not tax advice. Every rule below is quoted or summarised from the statute and the IRS forms and instructions as read on October 22, 2026, with links. Whether your activities qualify, and which elections suit you, depends on facts only your tax adviser can review.
Want the numbers first? Our R&D tax credit estimator runs the credit, the Section 280C choice, the payroll offset and the Section G test from your own figures, and has an Excel version.
What is on Form 6765
The Instructions for Form 6765 (Rev. December 2025) say the form is used "to figure and claim the credit for increasing research activities, to elect the reduced credit under section 280C, and to elect to claim a certain amount of the credit as a payroll tax credit against the employer portion of social security taxes." The December 2025 instructions say they are "for use with the January 2025 revision" of the form; the form PDF on irs.gov is marked Rev. December 2024. The parts:
| Part | What it does | Who fills it in |
|---|---|---|
| Item A | Section 280C reduced-credit election (Yes or No) | Everyone, on the original timely return |
| Item B | Controlled group or common control, with an attachment | Everyone answers; groups attach |
| Section A, lines 1-13 | Regular credit: 20% of QREs over a fixed-base amount | Companies not using the ASC |
| Section B, lines 14-26 | Alternative simplified credit (ASC) | Most startups |
| Section C, lines 27-32 | Current-year credit, including credits from partnerships and S corps | Everyone |
| Section D, lines 33-36 | Qualified small business payroll tax election | Qualified small businesses that elect it |
| Section E, lines 37-41 | Other information: number of business components, officer wages, acquisitions, new expense categories, ASC 730 directive | Everyone reporting QREs |
| Section F, lines 42-48 | QRE summary: wages, supplies, computer rental, contract research, basic research | Everyone |
| Section G, lines 49-56 | QREs by business component | Required for tax years beginning after 2025, with exceptions |
Section G: what changed for 2026 returns
The instructions are direct: "For tax years beginning before 2026, Section G will be optional for all filers." And: "For tax years beginning after 2025, Section G will be required." A calendar-2026 tax year began on January 1, 2026, so the 2026 return you file in 2027 is the first one where it applies. You fill in Section G first, and its totals flow into Section F.
The two exceptions
Per the instructions, Section G is required unless:
- "You are a qualified small business, as defined under section 41(h)(3), and you checked the box to claim a reduced payroll tax credit" (that is, you make the payroll tax election on line 33a); or
- "Your total QREs determined at the controlled group level on line 48 are equal to or less than $1.5 million; your average annual gross receipts for the prior three tax years are equal to or less than $50 million, as determined under section 448(c)(3) ... and you are reporting a research credit on an original return."
Many seed-stage SaaS companies meet one of the two. The ones that do not: a company past its payroll-election years with more than $1.5 million of QREs, or anyone claiming the credit on an amended return. The small-claim exception does not cover amended returns, and an amended claim also needs the separate claim information the instructions describe under "Research Credit Claims on Amended Returns".
What Section G asks for
If it applies, you report "a minimum of 80% of total QREs or a maximum of 50 business components", listed "in descending order by QRE amount" (the instructions call this "80%/Top 50"). Everything else goes on one line called "Aggregate Business Components". For each listed component you fill in:
- 49(a) and 49(b): the EIN of the entity doing the research and its principal business activity code.
- 49(c): the component's name or identifier, which should be "consistent with how you maintain the books and records that substantiate the qualified research activities".
- 49(d): type: Product, Process, or All Others (which includes computer software).
- 49(e): for software, the software type: internal use (IUS), dual function (DFS), non-IUS, or excepted from IUS treatment.
- 49(f): only for amended-return claims; not required on a timely original return.
- Columns 50-52: wage QREs split three ways: people doing the research, people directly supervising it (first-line managers only), and people directly supporting it.
- Columns 53-56: total wages, supplies, computer rental and contract research for the component.
The point for a SaaS company is that QREs are no longer one number per year. You need them per product, feature or process, with each engineer's research wages split between doing and supervising. If your engineering time is tracked by epic or project, the work is mostly mapping projects to business components. If it is not, start now: the 2026 data has to be rebuilt from 2026 records.
What counts as a qualified research expense for a SaaS company
Under 26 U.S.C. 41(b), QREs are in-house research expenses plus contract research expenses:
- Wages "paid or incurred to an employee for qualified services", meaning engaging in qualified research or in its direct supervision or direct support. "Wages" has the income-tax-withholding meaning in section 3401(a), so it is pay to the employee, not employer payroll taxes. If someone splits their time, only the research share counts, but if research is "substantially all" of their work, all their wages count; the regulation sets that line at 80% of their wages (Treas. Reg. 1.41-2(d)). For a SaaS company this is usually most of the claim.
- Supplies used in research: tangible property other than land and depreciable property. Small for most software companies.
- Computer rental: amounts paid "for the right to use computers in the conduct of qualified research". The regulation limits this to time-sharing computers that are "owned and operated by someone other than the taxpayer, located off the taxpayer's premises", where "the taxpayer must not be the primary user" (Treas. Reg. 1.41-2(b)(4)). Cloud environments used for development are the obvious candidate. Whether your bill fits those words is a call for your preparer, and servers that run the product for paying customers are not research.
- Contract research: 65% of amounts paid to non-employees for qualified research. An outside development agency or contractor building new functionality is the usual case. Prepaid amounts count in the year the work is done.
The activity has to qualify, too
Spending only counts if the activity is qualified research. Section 41(d) applies a four-part test "separately with respect to each business component": the costs must be domestic research or experimental expenditures under Section 174A, the work must aim to discover information that is technological in nature, that information must be meant to help develop a new or improved business component, and substantially all of the activities must be a process of experimentation relating to function, performance, reliability or quality. Excluded: research after commercial production begins, adapting a product to one customer's needs, duplication, surveys and studies, research funded by someone else, and "research conducted outside the United States". An engineer in Poland or India does not generate QREs, whoever employs them. (The Section 174A guide covers how that same offshore spend is treated for the deduction.)
Software type: why SaaS is usually "non-IUS"
Software developed "primarily for the taxpayer's internal use" in general and administrative functions (finance, HR, support services) has to pass an extra high-threshold-of-innovation test. The instructions list software that is not internal use, including software "developed to be commercially sold, leased, licensed, or otherwise marketed to third parties" and software "developed to enable a taxpayer to interact with third parties or to allow third parties to initiate functions or review data on the taxpayer's system". The product your customers log into usually fits the second description. The internal admin panel, billing scripts or HR tooling you built for yourself are where the IUS questions start, and Section G now asks you to label each software component accordingly.
The alternative simplified credit (ASC)
Section 41(c)(4) lets you elect a credit "equal to 14 percent of so much of the qualified research expenses for the taxable year as exceeds 50 percent of the average qualified research expenses for the 3 taxable years preceding". On the form: add the three prior years' QREs (line 21), divide by 6 (line 22), subtract from this year's QREs (line 23), multiply by 14% (line 24). If "the taxpayer has no qualified research expenses in any one of the 3 taxable years preceding", the credit is 6% of this year's QREs instead. That second rule matters for young companies: a company that started research in 2024 has no QREs for 2023, so its 2026 credit is 6% of 2026 QREs.
The ASC needs no 1980s gross receipts history and no fixed-base percentage, which is why most startups use it. The election "shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary"; the instructions say you revoke it for a later year by completing Section A on that year's timely original return. You can make the ASC election on an amended return only for a year in which you had not already claimed the credit another way. The instructions also suggest figuring the credit both ways where you are eligible; our estimator does the ASC only.
Worked example
An illustrative US SaaS company, calendar tax year, all engineering in the US. These are the default inputs of our estimator:
| Year | Wages | Supplies | Computer rental | Contract research paid | QREs |
|---|---|---|---|---|---|
| 2023 | $300,000 | $0 | $6,000 | $40,000 (65% = $26,000) | $332,000 |
| 2024 | $500,000 | $0 | $10,000 | $60,000 (65% = $39,000) | $549,000 |
| 2025 | $800,000 | $0 | $15,000 | $80,000 (65% = $52,000) | $867,000 |
| 2026 (credit year) | $1,100,000 | $5,000 | $20,000 | $100,000 (65% = $65,000) | $1,190,000 |
- Prior three years: $332,000 + $549,000 + $867,000 = $1,748,000.
- Line 22: $1,748,000 ÷ 6 = $291,333.
- Line 23: $1,190,000 − $291,333 = $898,667.
- Line 24: 14% × $898,667 = $125,813.
Had the company had no QREs in 2023, the credit would be 6% × $1,190,000 = $71,400. The difference is the reason to keep 2023 records if you had any research spend that year.
Section 280C: the credit and your Section 174A deduction
From tax years beginning after December 31, 2024, Section 280C(c)(1) says your domestic research or experimental expenditures "otherwise taken into account as a deduction or charged to capital account ... shall be reduced by the amount of the credit allowed under section 41(a)". In plain terms: claim a $125,813 credit and your Section 174A deduction shrinks by $125,813.
The alternative is the reduced-credit election in 280C(c)(2): the credit becomes the credit minus the credit times "the maximum rate of tax under section 11(b)", which is 21% (26 U.S.C. 11(b)). That is why Form 6765 line 26 multiplies by 79%. In the example, the reduced credit is $99,393 and the deduction stays whole. Rev. Proc. 2025-28 confirms that "The OBBBA made no amendments to § 280C(c)(2)" (section 2.05(3)).
- How to elect: check Yes on Item A. Per the instructions the election must be on your "original timely filed return, including extensions", "cannot be made or changed on an amended return", and "Once made, the election is irrevocable for that tax year."
- Payroll portion: "If you make an election to claim a portion of your research credit as a payroll tax credit, the amount elected is treated as a research credit for purposes of the reduced credit." The payroll offset is part of the credit for this calculation.
- Which is better: for a company paying 21% federal tax this year the two routes give about the same result ($125,813 credit minus $26,421 of extra tax, against a $99,393 credit). For a loss-making startup, not electing usually leaves more credit, because the smaller deduction only reduces a loss carryforward. That carryforward has a value later, so this is a question for your adviser, not a default.
- Closed window: Rev. Proc. 2025-28 let small businesses that used the retroactive Section 174A election make or revoke a 280C election late, on amended returns for earlier years. Those filings had to be made by July 6, 2026. That window is closed.
The qualified small business payroll tax election
This is the part that makes the credit worth something to a startup with no income tax to offset. Under Section 41(h), a qualified small business can elect to apply part of its research credit against payroll tax instead.
Who qualifies
- A corporation (including an S corporation) or partnership with "gross receipts of less than $5 million for the tax year", and
- "No gross receipts for any tax year before the 5-tax-year period ending with the tax year" (Form 6765 instructions). For a 2026 claim, the window is 2022 to 2026: first receipts in 2022 or later qualify, first receipts in 2021 do not.
- Not after 5 elections: "An election can't be made for a tax year if an election was made for 5 or more preceding tax years."
- Controlled group members are treated as one taxpayer for the gross receipts test.
Gross receipts are measured under section 448(c)(3), and the regulation the instructions point to says gross receipts "include any income from investments" and give interest as an example (Treas. Reg. 1.448-1T(f)(2)(iv)). A pre-revenue startup that earned interest on its seed money has had gross receipts, and that year can start the five-year clock. Check when your first interest income landed, not just your first customer invoice.
How much, and against what
The amount you elect is capped at $250,000, "increased by $250,000" for tax years beginning after December 31, 2022 (41(h)(4)(B)), so $500,000 now. The payroll portion is the least of the amount you elect, the research credit for the year, and, for a C corporation, the year's business credit carryforward (41(h)(2)). For a startup with no income tax liability, the whole credit is carried forward, so the limit is the credit itself or $500,000.
The credit then reduces payroll tax. Per the Form 8974 instructions and the IRS payroll tax credit page, "the payroll tax credit is first used to reduce the employer share of social security tax up to $250,000 per quarter and any remaining credit reduces the employer share of Medicare tax for the quarter", and anything left is carried forward to the next quarter. It never touches the employee share you withhold.
Timing: file early to get the cash earlier
- You make the election on Form 6765 Section D, attached to a timely filed income tax return including extensions. The IRS page says: "An election cannot be made with an amended return."
- You start using it on the employment tax return "for the first quarter that begins after it files the income tax return reflecting the payroll tax election", with Form 8974 attached to Form 941.
- For a calendar-2026 company: file the 2026 Form 1120 by March 31, 2027 and the credit starts in the April to June 2027 quarter. File on April 15 and it starts in July. File on the October 15 extension date and it starts in January 2028. The election is the same; the cash arrives up to nine months later.
In the worked example, the company is a qualified small business (2026 receipts of $1.8 million, first receipts in 2023) and elects the whole $125,813. If it files by March 31, 2027 and pays $30,000 a quarter of employer Social Security and Medicare tax, it uses $30,000 in each of the next four quarters and the last $5,813 in April to June 2028. That is a cash benefit spread over five quarters, which belongs in the runway forecast as reduced payroll tax in those quarters, not as a lump sum. Because it takes the payroll election, it is also exempt from Section G.
A larger company: Section G applies
Change the example: 2026 receipts of $6 million (so not a qualified small business), prior three-year average receipts of $3.5 million, and 2026 QREs of $2,030,000. The ASC is 14% × ($2,030,000 − $291,333) = $243,413, or $192,297 with the 280C election. Both Section G exceptions fail (no payroll election, QREs above $1.5 million), so the return has to show at least $1,624,000 of QREs (80%) by business component, up to 50 components, largest first.
Recordkeeping by business component
The regulation requires records "in sufficiently usable form and detail to substantiate that the expenditures claimed are eligible for the credit" (Treas. Reg. 1.41-4(d)). With Section G, the useful unit is the business component. What a SaaS company can keep during the year, mapped to the form:
- A list of business components with stable identifiers (product, major feature, internal tool), matching how your project tracker names them. That becomes column 49(c), and its count goes on line 37.
- Time by component for each person, split into doing research, first-line supervision and direct support (columns 50 to 52). Sprint or ticket data is a reasonable starting point; an end-of-year estimate is harder to defend.
- Payroll by person with W-2 wages, and which people are officers (line 38 asks for officer wages included in QREs).
- Location of each person and contractor, because only US research counts.
- Contractor agreements and invoices tied to components. To count as contract research, the agreement has to be made before the work, have the research performed on your behalf, and require you to pay even if the research fails; a payment that depends on success is not a contract research expense (Treas. Reg. 1.41-2(e)(2)).
- Cloud and other computer costs separated between development environments and production.
- The technical uncertainty and what you tried for each component: design documents, experiments, failed approaches. That is the evidence for the process-of-experimentation test.
- Software type for each component: product for customers, or internal tool in a general and administrative function.
Our year-end close checklist has this as a December task, and the 2027 startup tax calendar has the Form 1120 and Form 941 dates the payroll credit hangs on.
What to put in your model
- Payroll tax lines, net of the credit, starting in the first quarter after you file. Model it as a reduction of employer tax for as many quarters as it takes, as in the example.
- A filing date assumption. Filing in March instead of on extension moves the first quarter by up to nine months.
- The Section 174A deduction net of the credit if you do not make the 280C election. See the Section 174A guide for the cash tax side.
- QREs by year, because next year's credit depends on this year's spend through the three-year average.
FAQ
Is Form 6765 Section G mandatory for 2026?
For tax years beginning after 2025, yes, unless you are a qualified small business making the payroll tax election, or your QREs are $1.5 million or less, your average gross receipts for the prior three years are $50 million or less, and you claim on an original return. For tax years beginning before 2026 it is optional.
How do I calculate the alternative simplified credit?
Add your QREs for the three prior years and divide by 6. Subtract that from this year's QREs and multiply the result by 14%. If any of the three prior years had no QREs, use 6% of this year's QREs instead.
What is the maximum payroll tax credit for a startup?
$500,000 a year for tax years beginning after 2022, and never more than the research credit itself. It is applied against the employer share of Social Security tax and then the employer share of Medicare tax, with any excess carried to the next quarter.
Can I make the payroll tax election on an amended return?
No. It has to be made on a timely filed original return, including extensions. The same is true of the Section 280C reduced-credit election.
Do software developer salaries qualify for the R&D credit?
The share of their wages spent on qualified research, its direct supervision or direct support does, if the work is done in the US and passes the four-part test for the business component. If at least 80% of a person's wages relate to qualified services, all of their wages count.
Does the R&D credit reduce my Section 174A deduction?
Yes, by the full amount of the credit, unless you elect the reduced credit under Section 280C(c)(2), which cuts the credit to 79% instead and leaves the deduction alone.