Research and Development Tax Credit Expansion Act of 2025

This act aims to make the federal research and development (R&D) tax credit easier to use and more helpful for startups and small businesses. It would raise the credit’s dollar limits over time by tying them to inflation starting with tax years after 2026, so the cap keeps up with rising costs. It would also let eligible businesses use the refundable R&D credit to lower their federal unemployment tax, not just their regular payroll tax.

The act broadens who counts as a “qualified small business,” so more young and growing companies can qualify for the credit. It also simplifies the “alternative simplified credit” rules for small businesses by adjusting the percentage rates and adding special options for companies with little or no past R&D spending, making the credit easier to claim and more flexible.

• Who is affected: New and small businesses doing R&D.
• What changes: Inflation adjustments to dollar limits; the refundable credit can offset federal unemployment taxes; expanded eligibility; simpler rules and adjusted percentages for the alternative simplified credit .
• When: Most changes apply to tax years starting after December 31, 2025; inflation adjustments start after 2026 .