# Form 8974, quarter by quarter

> Social Security first, then Medicare, then carry the rest: one hypothetical credit through three quarters, and why the filing date matters.

Source: https://lopifi.com/learn/rd-credit-against-payroll-tax/form-8974-quarter-by-quarter
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How does Form 8974 apply the R&D payroll credit each quarter?** Social Security first, then Medicare, then carry the rest: one hypothetical credit through three quarters, and why the filing date matters.

The credit is applied to the employer's [payroll taxes](https://lopifi.com/md/glossary/payroll-liabilities) in a fixed order: Social Security (6.2% of wages) first, up to $250,000 a quarter, then Medicare (1.45%). It never touches the employees' half or the income tax withheld from them, and it isn't a [refundable credit](https://lopifi.com/md/glossary/refundable-credit): a quarter with no employer tax uses none of it.

> “Starting in the first quarter of 2023, 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.”

— [Instructions for Form 8974 (Rev. December 2024)](https://www.irs.gov/pub/irs-pdf/i8974.pdf) (PDF), Applying the payroll credit, quarter by quarter

| Quarter | Credit at start | Employer Social Security | Employer Medicare | Used | Carried |
| --- | --- | --- | --- | --- | --- |
| Q2 2028 | $15,102 | $6,820 | $1,595 | $8,415 | $6,687 |
| Q3 2028 | $6,687 | $6,820 | $1,595 | $6,687 | $0 |
| Q4 2028 | $0 | $6,820 | $1,595 | $0 | $0 |

Northwind files on March 10, 2028, so the credit starts in Q2 2028. Payroll of $110,000 a quarter, everyone under the Social Security wage base.

> “If the amount of any credit under paragraph (1) exceeds the limitation of paragraph (2) for any calendar quarter, such excess shall be carried to the succeeding calendar quarter and allowed as a credit under paragraph (1) for such quarter.”

— [IRC §3111(f)(3)](https://www.law.cornell.edu/uscode/text/26/3111), The credit against the employer's Social Security and Medicare tax

- **December 31, 2027** — 2027 tax year ends
- **March 10, 2028** — Return filed with the Section D election (Form 1120 + Form 6765)
- **April 1, 2028** — Q2 2028 begins: the first quarter after filing
- **Mid-April 2028** — The return's due date: the 15th day of the 4th month, or the next business day (Form 1120)
- **July 31, 2028** — Q2 2028 return, using $8,415 of the credit (Form 941 + Form 8974)
- **October 31, 2028** — Q3 2028 return, using the last $6,687 (Form 941 + Form 8974)

The filing date, and the quarters it decides.

> “Generally, a corporation must file its income tax return by the 15th day of the 4th month after the end of its tax year.”

— [Instructions for Form 1120, When To File](https://www.irs.gov/instructions/i1120), When the return carrying the election is due

> “Your Form 941 is due by the last day of the month that follows the end of the quarter.”

— [Instructions for Form 941, When To File](https://www.irs.gov/instructions/i941), The quarterly return Form 8974 is attached to

**Wrong:** Filed April 14, 2028, just before the deadline: the credit starts in Q3 2028.

**Right:** Filed March 10, 2028: the credit starts in Q2 2028.

Same credit, same payroll. Filing a few weeks earlier moves every quarter of it forward by one: the credit runs out in Q3 2028 instead of Q4 2028.

*[Figure: form 941]*

Illustrative: the Q2 2028 Form 941. The credit arrives on it through Form 8974, attached to the return.

## Where this page's rules come from

- [Instructions for Form 8974 (Rev. December 2024)](https://www.irs.gov/pub/irs-pdf/i8974.pdf) (PDF) — Applying the payroll credit, quarter by quarter (irs)
- [IRC §3111(f)(3)](https://www.law.cornell.edu/uscode/text/26/3111) — The credit against the employer's Social Security and Medicare tax (statute)
- [Instructions for Form 1120, When To File](https://www.irs.gov/instructions/i1120) — When the return carrying the election is due (irs)
- [Instructions for Form 941, When To File](https://www.irs.gov/instructions/i941) — The quarterly return Form 8974 is attached to (irs)
- [Form 8974 (Rev. December 2024)](https://www.irs.gov/pub/irs-pdf/f8974.pdf) (PDF) — Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities (form)

## Read further

- https://lopifi.com/md/journal-entries/rd-payroll-tax-credit
- https://lopifi.com/md/startups/form-941-and-payroll-tax-deposits
- https://lopifi.com/md/accounting/rd-tax-credit

- **Track:** [R&D tax credit](https://lopifi.com/md/learn/rd-credit)
- **Part of:** [Taking the credit against payroll tax](https://lopifi.com/md/learn/rd-credit-against-payroll-tax) — 6 min
- **Terms taught:** [Form 8974](https://lopifi.com/md/glossary/form-8974), [Payroll liabilities](https://lopifi.com/md/glossary/payroll-liabilities), [Refundable credit](https://lopifi.com/md/glossary/refundable-credit)
- **Previous:** [Taking the credit against payroll tax](https://lopifi.com/md/learn/rd-credit-against-payroll-tax)
- **Next:** [Form 6765, section by section, R&D credit · Lesson 6](https://lopifi.com/md/learn/how-to-fill-out-form-6765)
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