Business Tax Credits 2022
Article

Business Tax Credits 2022

August 16, 2022

What are Business Tax Credits?

Business tax credits are money that can be subtracted, dollar for dollar, from owed business income taxes at state or federal levels. Business tax credits incentivize investment or provide assistance in these targeted areas:

Business Tax Credits 2022 Infographic

Want to display this infographic on your site? Copy and paste the following code. Be sure to include attribution to armaninollp.com with this graphic.

Federal Tax Credits 2022 for Business

  1. R&D Tax Credit
  2. Orphan Drug Credit
  3. Work Opportunity Tax Credit (WOTC)
  4. Empowerment Zone Credit
  5. Employer Differential Wage Payments Credit
  6. FICA Tip Credit
  7. Retirement Plan Startup Credit
  8. Small Business Health Care Tax Credit
  9. Employer-Provided Child Care Tax Credit
  10. Employer Credit for Family and Medical Leave
  11. Mine Rescue Team Training Credit
  12. Energy Investment Credit
  13. Solar Tax Credit
  14. Biodiesel and Renewable Diesel Fuels Credit
  15. Carbon Dioxide Sequestration Credit
  16. Low Sulfur Diesel Fuel Production Credit
  17. Electric Vehicle (EV) and Plug-in Hybrid Electric Vehicle (PHEV) Credit
  18. Renewable Electricity, Refined Coal, and Indian Coal Production Credit
  19. Energy Efficient Commercial Building Credit (179D)
  20. Low-Income Housing Credit (LIHTC)
  21. New Markets Credit
  22. Historic Preservation Tax Credit
  23. Disabled Access Credit
  24. Opportunity Zone
  25. Distilled Spirits Credit
  26. Qualified Railroad Track Maintenance Credit

1. R&D Tax Credit

The Research and Development (R&D) tax credit (also known as the "Increasing Research Activities Credit" and "Research and Experimentation (R&E) Credit") is a federal business tax credit that helps companies that have spent money on research and development recoup some of these costs, including expenditures on the development, design or improvement of products, processes, formulas, patents, techniques or software.

This federal tax credit could save up to $250,000 in payroll taxes. To be eligible, the business needs to engage in what the IRS calls qualified research expenditures, or QREs. In its most basic form, the R&D tax credit covers 5% to 15% of qualified research expenditures. Gross receipts for the year in question will need to be lower than $5 million, and you can’t have gross receipts from more than five years ago.

Type: Nonrefundable
Dates: No expiration (Permanent part of tax code)
Claim Process: File Form 6765, Credit for Increasing Research Activities with annual federal income tax return.

2. Orphan Drug Credit

This federal tax credit saves 25% of qualified clinical testing expenses paid or incurred during the tax year. This credit incentivizes pharmaceutical companies to develop drugs and treatments for rare diseases that don't affect enough people for the company to make a profit on the sales of those medications and treatments.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: File Form 8820, Orphan Drug Credit with annual federal income tax returns.

3. Work Opportunity Tax Credit (WOTC)

This federal tax credit provides tax savings to companies who employ individuals that face significant barriers to employment with savings up to $2,400/employee. Companies may qualify for this credit if they have first and/or second year wages paid to or incurred for targeted groups during the tax year.

WOTC-Eligible Worker Categories:

  1. Qualified recipients of Temporary Assistance for Needy Families (TANF)
  2. Qualified veterans receiving food stamps or qualified veterans with a service-connected disability who either have a hiring date that is not more than one year after having been discharged or released, or have aggregate periods of unemployment during the one-year period ending on the hiring date that equal or exceed six months
  3. Ex-felons hired no later than one year after conviction or release from prison
  4. Designated residents of Empowerment Zones or Rural Renewal Counties who are at least age 18, but younger than 40, on the hiring date
  5. Vocational rehabilitation referrals
  6. Qualified summer youth employees ages 16 through 17 who reside in an Empowerment Zone or Rural Renewal County
  7. Qualified food stamp (SNAP) recipients who are at least age 18, but younger than 40, on the hiring date
  8. Qualified recipients of Supplemental Security Income (SSI)
  9. Long-term family assistance recipients
  10. Qualified long-term unemployment recipients

Type: Nonrefundable
Dates: Jan 1, 2015 - Dec 31, 2025
Claim Process: Request certification by filing IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit with the state workforce agency within 28 days after eligible workers begin work. Calculate the credit using Form 5884, Work Opportunity Credit, and include it when filing annual federal income tax returns.

4. Empowerment Zone Credit

This federal tax credit incentivizes hiring individuals that live and work in designated Empowerment Zones (EZs) – economically distressed areas identified by the federal government to encourage economic development in low-income and high-poverty areas. Empowerment Zones are one of three U.S. congressional designations that make up the Empowerment Zone Program to aid distressed urban and rural communities – the other two being Enterprise Communities (ECs) and Renewal Communities (RCs).

Employers eligible for Empowerment Zone tax credits can receive 20% of their qualified zone wages paid or incurred (up to $15,000 savings) during the calendar year for services performed by an employee while the employee is a qualified zone employee. See IRS Form 8844 for qualifying empowerment zone employees and wages.

Type: Nonrefundable
Dates: Jan 1, 1993 - Dec 31, 2025
Claim: File Form 8844, Empowerment Zone Credit with quarterly federal employment tax returns.

5. Employer Differential Wage Payments Credit

This federal tax credit, meant to alleviate the burden of military deployment, is available to employers that offer differential pay to employees entering active duty uniformed service in the U.S. This credit saves 20% of up to $20,000 of differential pay made to eligible employees. (i.e. Up to $4,000/active duty employee)

Type: Nonrefundable (part of the general business credit)
Dates: Effective after 2008
Claim Process: File Form 8932, Credit for Employer Differential Wage Payments with annual federal income tax returns beginning in 2021. For earlier tax years, use the applicable prior form version.

6. FICA Tip Credit

This federal tax credit (also known as the "Credit for Portion of Employer Social Security Paid with Respect to Employee Cash Tips") typically equals the amount of employer social security or Medicare taxes paid on or incurred by the employer on tips received by the employee. (i.e. Save up to 7.65% of reported tips) It is only available for employers working in entities where tipping is customary for providing food or beverages.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: File Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips with annual federal income tax returns.

7. Retirement Plan Startup Credit

This federal tax credit (also known as the “Small Employer Pension Plan Credit”) saves up to $500, or 50% of employee pension startup costs. To qualify, companies must employ 100 or fewer people who have received at least $5,000 in compensation. The company must not have had an existing 401(k) or other retirement plan in place for at least three years.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: File Form 8881, Credit for Small Employer Pension Plan Startup Costs with annual federal income tax returns for the first three years of the newly started pension plan.

8. Small Business Health Care Tax Credit

This federal tax credit (also known as "Credit for Small Employer Health Insurance Premiums") applies to employers paying at least half of the premiums for their employees’ health coverage. It saves up to 50% of employee health coverage expenses for qualifying employers that meet certain criteria and purchase coverage through the Small Business Health Options (SHOP) program. This credit only applies to companies who employ fewer than 25 employees and pay average wages of less than $50,000 a year.

Type: Refundable
Dates: No expiration currently defined
Claim Process: File Form 8941, Credit for Small Employer Health Insurance Premiums with annual federal income tax returns.

9. Employer-Provided Child Care Tax Credit

This federal tax credit saves 25% of qualified expenditures paid for employee-provided childcare -- up to $150,000 maximum credit savings per year. Employers themselves may also be eligible to receive the same benefits as their employees if the company is incorporated.

Type: Refundable
Dates: No expiration currently defined
Claim Process: File Form 8882, Credit for Employer-Provided Childcare Facilities and Services with annual federal income tax returns.

10. Employer Credit for Family and Medical Leave

This federal tax credit, which applies to qualified employers who paid leave to an employee for family or medical-related reasons, could save between 12.5% and 25% of the leave pay provided, depending on the employee's pre-leave pay. To qualify, the employee must have been on payroll for at least one year and the employer must have provided leave pay for at least two weeks. See the IRS FAQ for more information.

Type: Refundable
Dates: Dec 31, 2017 - Dec 31, 2025
Claim Process: File Form 8994, Employer Credit for Paid Family and Medical Leave with annual federal income tax returns.

11. Mine Rescue Team Training Credit

This federal tax credit applies to the cost of mine rescue training programs -- either paid or incurred -- saving up to $50,000 for each qualified employee. Employers may claim this credit if they employ individuals as miners in U.S. underground mines.

Type: Nonrefundable
Dates: Effective through Dec 31, 2022
Claim Process: File Form 8923, Mine Rescue Team Training Credit with annual federal income tax returns.

12. Energy Investment Credit

This federal tax credit (also known as "Rehabilitation, Energy & Reforestation Investment Credit," "Energy Credit" or "Energy Investment Tax Credit (ITC)") saves up to 26% of the total purchase and installation costs of certain renewable energy properties. This includes credits for rehabilitation, energy, qualifying advanced coal projects, qualifying gasification projects and qualifying advanced energy projects – geothermal systems, solar technologies, fuel cells, small wind turbines, microturbines, waste energy recovery, and combined heat and power (CHP).

Type: Nonrefundable
Dates: Energy properties where construction began after Jan 1, 2020
Claim Process: File Form 3468, Investment Credit with annual federal income tax returns in the year the energy property was placed in service.

13. Solar Tax Credit

This federal tax credit (also referred to as the "Solar Investment Tax Credit (ITC)") saves up to 26% of costs for new solar energy systems where a non-tax-exempt business or individual owns (not leases) and uses the system in the United States.

The ITC savings percentage scales down as follows:

  • 26% savings if construction begins between 2020 to 2022
  • 22% savings if construction begins in 2023
  • 10% savings if construction begins in 2024 or after

The IRS qualifies construction as “started” when 5% of project costs have been incurred. Solar-powered units that illuminate, heat/cool water, or generate electricity along with their respective storage equipment, installation, and labor costs are eligible. (Solar systems for heating swimming pools or hot tubs are not eligible.) See the U.S. Department of Energy Residential and Commercial ITC Factsheets for eligibility and savings specifics and exceptions.

Several U.S. states and territories additionally offer solar tax incentives or rebates. California, Minnesota, Texas, New York, Colorado, and Oregon offer over 100 solar incentives. Visit the Database of State Incentives for Renewables & Efficiency (DSIRE) for program details. If you’re considering solar lighting or solar panels, be sure to leverage both federal and state tax incentives.

Type: Nonrefundable
Dates: Solar properties where construction began after Jan 1, 2020
Claim Process: File Form 3468, Investment Credit with annual federal income tax returns in the year the solar system was placed in service.

Note: The Solar Tax Credit (IRS Form 3468, ITC) applies for businesses while the Residential Solar Energy Credit (IRS Form 5695) applies for individual homeowners. The rules are similar, but differ slightly.

14. Biodiesel and Renewable Diesel Fuels Credit

This federal tax credit saves $1.00 per gallon and is available to businesses and individuals who use biodiesel, agri-biodiesel or renewable diesel in their vehicles or as the on-road fuel for their business or trade.

Type: Nonrefundable
Dates: Biofuel used or sold 2018 - 2021
Claim Process: File Form 8864, Biodiesel and Renewable Diesel Fuels with annual federal income tax returns.

15. Carbon Dioxide Sequestration Credit

This is a Section 45Q federal tax credit available to businesses that purchase and use carbon capture and sequestration mechanisms. The credit amount is calculated per metric ton of carbon oxide or carbon dioxide captured – with savings up to $50/metric ton. There’s currently no limit on maximum savings. To determine the credit rates, refer to IRS Form 8933, Carbon Oxide Sequestration Credit instructions.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: File Form 8933, Carbon Oxide Sequestration Credit with annual federal income tax returns.

16. Low Sulfur Diesel Fuel Production Credit

This federal production tax credit (PTC) saves five cents ($0.05) per gallon and is available to qualified small business refiners of low sulfur diesel fuels.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: File Form 8896, Low Sulfur Diesel Fuel Production Credit with annual federal income tax returns.

17. Electric Vehicle (EV) and Plug-in Hybrid Electric Vehicle (PHEV) Credit

This federal tax credit saves between $2,500 and $7,500 depending upon the vehicle's battery capacity. To see if your vehicle qualifies and calculate your credit amount, use the EPA's EV Tax Credit Calculator. Individuals or businesses who purchased and used a qualified all-electric (EV) or plug-in hybrid electric vehicle (PHEV) on or after 2010 qualify for this credit. See IRS Qualified Plug-In Electric Drive Motor Vehicles (IRC 30D) for the latest updates.

Type: Nonrefundable
Dates: This tax credit phases-out for vehicles from manufacturers that have sold more than 200,000 qualified vehicles for use in the United States determined on a cumulative basis for sales after December 31, 2009.*
Claim Process: File Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit with annual federal income tax returns in the year you purchased and began using your electric vehicle.

*NOTE: Tesla and General Motors electric or hybrid vehicles do not qualify for the 2022 EV tax credit -- both manufacturers hit the 200,000 qualified vehicles limit. (i.e., The credit is not available for Tesla vehicles acquired after Dec 31, 2019 or General Motors vehicles acquired after Mar 31, 2020.)

18. Renewable Electricity, Refined Coal, and Indian Coal Production Credit

This provision provides a federal production tax credit (PTC) for the sale of renewable electricity, refined coal or Indian coal that is produced by certain renewable energy production property in the United States. The amount of the credit varies based on the production method and amount of energy produced and the reference price of the relevant fuel type.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: File Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit with annual federal income tax returns.

19. Energy Efficient Commercial Building Credit (179D)

This credit, technically a federal tax deduction, (also known as the "Commercial Building Energy-Efficient Tax Deduction") saves up to $1.88 per square foot and is available to building owners that purchase and install qualifying energy efficient equipment. Tenants can also claim the credit if they make qualified construction expenditures to the building.

Type: Nonrefundable
Dates: No expiration (Permanent part of tax code)
Claim Process: To claim the deduction, building owners must obtain a certification and/or allocation letter confirming the property meets all requirements and include this documentation with annual federal income tax returns. Owners must use a certified software to calculate energy and consumption amounts. See 179D Commercial Buildings Energy-Efficiency Tax Deduction for a list of certified software.

20. Low-Income Housing Credit (LIHTC)

Also known as the "Affordable Housing Credit" or "Housing Credit," this federal tax credit is an incentive for real estate developers and investors to build or renovate housing for low-income Americans. There are two types of Low-Income Housing tax credits that developers can leverage -- the 4% LIHTC, which is used in combination with tax-exempt private activity bonds, and the 9% LIHTC, which is used mostly for new construction projects.

The credit is calculated as 4% or 9% of the project’s qualified basis. Typically taken over a 10-year period, the transferrable credit is administered by state housing finance authorities. The credit can't exceed the amount allocated to the building and can only be claimed for residential rental housing projects that meet specific income requirements.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: File Form 8586, Low-Income Housing Credit with annual federal income tax returns.

21. New Markets Credit

This federal tax credit (also known as "New Markets Tax Credit (NMTC)") incentivizes economic growth and community development through the use of tax credits that attract private capital into low-income communities. The NMTC Program allows individual and corporate investors to receive a tax credit when they make investments in Community Development Entities (CDEs). The credit saves 39% of the initial investment amount and is claimed over a seven-year credit period.

Type: Nonrefundable
Dates: Dec 21, 2000 - Dec 31, 2025
Claim Process: File Form 8874, New Markets Credit with annual federal income tax returns.

22. Historic Preservation Tax Credit

This federal tax credit (also known as "Rehabilitation, Energy & Reforestation Investment Credit," "Investment Credit" or "Historic Tax Credit (HTC)") provides a credit for 20% of the expenses incurred in renovating a historic building for business or for some income-generating use. The credit excludes building purchase costs and you must take the 20% credit spread out over five years, starting in the year you placed the building into service.

Taxpayers who own an interest in the historic building, or are lessees of the building in some cases, are eligible to claim this credit. Passthrough entities cannot claim the credit but their partners, members, shareholders and beneficiaries are eligible, as are individuals, corporations, estates and trusts. See IRS Rehabilitation Credit (Historic Preservation) FAQs for more details.

Type: Refundable
Dates: No expiration currently defined
Claim: File Form 3468, Investment Credit with annual federal income tax returns.

23. Disabled Access Credit

Businesses are eligible for this federal credit if they spend money to make their building more accessible for employees, customers and other individuals with disabilities. The credit covers 50% of expenses, up to $10,250. See Tax Benefits for Businesses Who Have Employees with Disabilities for further details.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: Calculate eligible access expenses using IRS Form 8826, Disabled Access Credit and file with annual federal income tax returns.

24. Opportunity Zones

An Opportunity Zone is a federally designated low-income area that offers tax incentives for investment in qualified local businesses and property. Also called a "Qualified Opportunity Zone" or "QOZ," they were created by the 2017 Tax Cuts and Jobs Act (TCJA) to encourage long-term, private investment in economically distressed communities. See Opportunity Zones for more details.

Type: Nonrefundable
Dates: Dec 31, 2047 is the final date to dispose of an opportunity zone investment.
Claim Process: An eligible corporation or partnership annually files Form 8996, Qualified Opportunity Fund with its federal income tax return. Investors must file Form 8997 annually and file Form 8949 for the first year of the QOF investment.

25. Distilled Spirits Credit

This federal tax credit is part of the general business credit and is figured by multiplying the number of cases of bottled distilled spirits purchased or stored during the tax year by the average tax-financing cost per case for the most recent calendar year ending before the beginning of the tax year.

Type: Nonrefundable
Dates: No expiration currently defined
Claim Process: Partnerships and S Corporations must file Form 8906, Distilled Spirits Credit with annual federal income tax returns. All other taxpayers report this credit directly on line 1n in Part III of Form 3800, General Business Credit. See form instructions for exceptions.

26. Qualified Railroad Track Maintenance Credit

Also called the 45G Tax Credit, this federal tax credit grants an amount equal to 50% of qualified track maintenance expenditures and other qualifying railroad infrastructure projects for short lines and regional railroads across the U.S.

Type: Nonrefundable
Dates: Effective through Dec 31, 2022
Claim Process: File Form 8900, Qualified Railroad Track Maintenance Credit with annual federal income tax returns.


Business Tax Credit Strategy

Have you claimed savings for ALL tax credits for which your business is eligible?

Whether you’re investing in research, hiring new employees, expanding geographic reach, or making improvements to current location, your bottom line could be boosted with tax credit savings.

Many business tax credits are available at both state and federal levels, providing stacked savings opportunities. Planning for these credits is crucial, as some deadlines are time sensitive and triggered based on actions like hiring employees or selecting a specific location to move your business.

Don’t miss out. Take advantage of all eligible tax credits for your business and significantly reduce the taxes you owe to the government. Our business tax experts can help you identify federal and state credits and complete the claim process, so you can reinvest tax savings for sustaining and growing your business.

For assistance with claiming business tax credits, see our tax credit services.




The information contained on this page is for general guidance on matters of interest only. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before taking action, consult an Armanino tax consultant.

Are You Missing Tax Credit Savings?

Armanino has the industry expertise, tax credit experience and track record of customer satisfaction to best advise your tax credit incentive strategy and compliance needs.

Contact us today for a free assessment.