Let's answer some of your most frequently asked questions about R&D tax credits.
What Is the R&D Tax Credit?
The research and development (R&D) tax credit is a federal benefit that can be utilized as a payroll tax refund or to reduce a startup's taxable income.
It was enacted in 1981 to promote US research and development operations. And the Protecting Americans from Tax Hikes (PATH) Act of 2015 made the R&D tax credit monetizable for small to mid-sized firms.
How Does the R&D Tax Credit Work?
The tax credit is a payroll tax refund or lowers tax obligations when you carry out specific tasks — such as creating new or improved goods, services, software, methods, formulas, or ideas.
Do I Qualify for the R&D Tax Credit?
You qualify if:
- You actively create new and improved products, methods, software, techniques, formulas, or inventions
- You have U.S. employees or contractors who produce new and improved goods, services, software, algorithms, formulas, or innovations
Do I Need to Be Working on Groundbreaking Innovations?
No :) Your business doesn't have to be one-of-a-kind to qualify for the R&D credit.
A wide range of companies — including software, hardware, science, construction, beauty, startups, and more — will likely qualify for at least a portion of the credit.
Can I Still Qualify If My Project Fails?
Yes! As long as project expenses satisfy the requirements for qualified research, you can deduct them — even if the project is unsuccessful or placed on hold.
Do I Need to Be Profitable?
No :) You don't need to be profitable to get cash back.
With Fondo, you can apply your tax credit to payroll taxes — so you receive money back from the IRS each time you process payroll or as a cash refund at the end of the quarter. You can earn up to 10% of your total annual payroll.
But, if you are profitable, don't worry!
You can use R&D credits to offset your federal income taxes. So on Tax Day, you'll pay significantly less.
What Expenses Can I Claim for R&D Tax Credits?
You can claim the following expenses:
- Employee wages
- Payments to contractors
- Cloud hosting and infrastructure costs (some)
- Supply costs
How Much Credit Can I Receive?
Get up to 10% back on qualifying expenses, including:
- Salaries/wages
- Contractor costs
- Cloud hosting and infrastructure (some)
- Consumables
- Cost of supplies
- Legal fees (patents)
Do I Need a Full Year of Payroll to Get R&D Credits?
No. You can claim R&D tax credits with as little as one month of payroll.
The only requirement is that you pay what the IRS refers to as "Qualified Research Expenses" (i.e., paying employee salaries, hiring a contracted engineer or product design company, or working with a CRO).
We're happy to help you with this; set up a meeting with one of our tax credit experts here, and we'll guide you through every step of the procedure.
How Long Does the R&D Credit Take to Process?
The R&D credit can offset payroll taxes starting the quarter after the credit is chosen.
For example:
- If you apply for credit in Q1, you're first eligible to deduct or receive a refund on your payroll taxes in Q2
- You continue to receive credits for each subsequent quarter until the credit is ultimately used up
Your payroll provider chooses the exact day and payment method.
How Does Fondo Credits Work?
When you sign up with Fondo, you tell us a bit about your startup and connect to your payroll. Then, we do the rest.
Based on the information you provide and the data in your payroll system, our team qualifies your startup and does any necessary paperwork to claim the credits on your behalf when we file your corporate taxes.
How Long Does Fondo Take to Set up?
About 15 minutes.
For most of our tax credits, we’ll need no more than an hour of additional time when we generate your paperwork. We just need to confirm details and ensure you and your accountant understand your credit eligibility.
If you have any questions, we’re happy to walk you through this process live.
What Payroll Systems Does Fondo Support?
We work with many payroll systems — including Gusto, Rippling, ADP, QuickBooks, Justworks, Paychex, Namely, Trinet, Sage, and OnPay.
During onboarding, you'll have access to the complete list of integrations. And if you have any questions, feel free to ping us!
Do I Need to Have a Digital Payroll System?
Yes.
We need real-time access to your payroll software to recommend tax credits/ incentives and help you apply.
Most startups use Gusto or Rippling.
If you don’t already have a digital payroll system, let us know! We’re happy to help you out.
How Much Does Fondo Charge?
Fondo only makes money when you do.
Our fees never exceed 20% of the savings we find/claim for you.
For example, if your business qualifies for $100,000 in tax credits, we cap our fee at $20,000.
How Is Fondo Different From Other R&D Tax Credit Agencies?
The benefits of claiming your tax credits with Fondo is that we can handle everything you need to get it done —end-to-end. Often times founders are stuck working with accountants who don't know about these credits or with a company who will only provide the R&D study and then you still need to find someone else to (1) file your tax returns with the attached R&D credit forms, (2) update your payroll system, and (3) do your bookkeeping.
✅ Cash back from the IRS (Fondo will complete the R&D Credit Study, prepare Tax Credit Forms, and make required updates to your payroll system)
☑️ Optional Add-on: TaxPass - Delaware + Federal/State Corporate Income Taxes Filed (timely filings that you need to claim the credit)
☑️ Optional Add-on: Bookkeeping (get financial statements that you need to file your tax returns)
Do I Qualify for Fondo R&D Credits?
You qualify if your startup or company:
- Is based in the U.S.
- Employs people in the U.S.
- Conducts some economic activity in the U.S.
- I.e., has employees, contractors, or an outsourced development firm based in the U.S.
You're likely owed cash back if you're doing any of the following:
- Raising venture capital from US-based funds or angel investors
- Hiring engineers, designers, PMs, or scientists to launch a new product
- Hiring contracted engineering or product design firms
- Working with a contract research organization (CRO)
I Already Have a CPA. Don't They Claim Credits for Me?
Your CPA might claim some credits.
However, Fondo supports 200+ credits most accountants don't check for.
Since these credits are paid per filing — rather than by the amount of money they save you — many firms and accountants choose not to apply for them.
We'll qualify your startup at no cost and work with your CPA:
- On Tax Day, we send your CPA any necessary paperwork — so you can get the money you're owed
- We also respond to any queries they might have
What Happens if the Government Doesn’t Approve My Request for Credit? What if They Approve Less than What Fondo Advanced to Me?
We can usually predict credits accurately. But if we overestimate your credit eligibility, we will:
- Compensate you for any excess payments
- Adjust your cash advance
- Reconcile our fees below 20%
We don't get paid if you don't succeed.
The Fondo Guarantee protects you when you engage with us. We guarantee that you'll improve financially by using our services. And if you don’t, we’ll cover you up to $1,000,000.
What Happens When It’s Time to File My Taxes?
Fondo fills out the necessary paperwork and sends it to you so you can file your taxes.
The specific steps depend on which tax credits we're helping you claim.
For example, with the Federal R&D credit:
- We prepare and provide Form 6765 using data collected from your payroll system
- You can then review the form with your accountant — who then files it with your tax return
When and How Will I Get the Money Back From the Government?
Your payment schedule depends on which credits you claim and how you claim them.
Reach out to our team for more information.
Is My Data Safe, Secure, and Private with Fondo?
Yes. Your safety is our priority.
We use Finch to securely auth into your payroll systems.
And we only access the data we need to qualify your startup for tax credits and credit advances and to develop other Fondo products.
In addition, we never share your data with third parties. All the data we collect is securely protected when stored and sent.
For more information, check our terms of service and privacy policy.
How Much of My Total Credit Will Fondo Advance?
The exact amount depends on several factors — including which credits we’re helping you claim and how much you’re approved for.
Fondo lets you see your credit eligibility in advance.
Contact Us for More Info
Over the years, we have helped hundreds of companies benefit from R&D tax credits. We would love to know if you have further questions regarding R&D tax credits or how Fondo makes tax filing easy. Get an instant quote here.
