What Is the General Business Credit?
The general business credit (GBC) is the aggregate value of individual tax credits a business claims during a tax year. It consists of carryforward credits from previous years plus the current year's total business credits. Because it's a tax credit—and not a tax deduction—the amount comes directly off your tax bill. If you claim multiple business tax credits on your tax return, you must attach Form 3800, General Business Credit, along with the IRS forms for the individual credits.
- The general business credit is the total value of all tax credits a business claims for a tax year.
- If you claim more than one business credit, you must report the total on form Form 3800, General Business Credit, when filing your income tax return.
- Dozens of business tax credits may be included in Form 3800, including the investment credit, low-income housing credit, and the credit for small employer health insurance premiums.
Understanding the General Business Credit
The general business tax credit is unique in that it is not a single, separate credit. Instead, it's a collection of specific tax credits that promote various business activities, including research, oil recovery, reforestation, and starting a pension plan.
If you claim multiple business tax credits, fill out the appropriate IRS form for each tax credit and then carry over the total to Form 3800, General Business Credit.
Before filling out Form 3800, you must first claim the individual tax credits on their relevant tax forms, each calculated under its own set of rules. Next, carry over the resulting combined credit to the General Business Credit Form 3800 to determine the overall allowable credit. While there are dozens of business tax credits, some of the more common credits businesses claim include:
- Investment credit (Form 3468)—this single credit consists of five different "sub" credits: rehabilitation, energy, qualifying advanced coal project, qualifying gasification project, and qualifying advanced energy project
- Work opportunity credit (Form 5884-C)
- Credit for small employer health insurance premiums (Form 8941)
- Employer credit for paid family and medical leave (Form 8994)
- Low-income housing tax credit (Form 8586)
- Disabled access credit (Form 8826)
- Energy efficient home credit (Form 9808)—don't claim the credit for homes sold or leased after 2021 unless the credit is extended again
- Credit for employer-provided child care facilities and services (Form 8882)
- Credit for small employer pension plan startup costs (Form 8881)
- Credit for employer Social Security and Medicare taxes paid on certain employee tips (Form 8846)
Some tax credits have expiration dates. Be sure to check the instructions for each credit to make sure it's available for the applicable tax year.
The general business tax credit is a nonrefundable credit that directly reduces your tax bill. However, as a nonrefundable credit, it can only reduce your tax liability to zero. Any credit amount that remains beyond that is automatically forfeited.
If you can't use part or all of the general business credit because of the tax liability limit, you generally carry the unused credit back one year. Different rules apply for some credits, including oil and gas production credits. If you have an unused credit after carrying it back, carry it forward to each of the 20 tax years after the year of the credit.
General business credits are treated on a first in, first out (FIFO) basis. Therefore, the order you use credits in any tax year is:
- Carryforwards to that year, the earliest ones first;
- The general business credit earned in that year; and
- The carryback to that year.
General Business Credit Limitations
Like other tax credits, the general business credit has limitations. To calculate the limit that applies to you:
- Add your net income tax and your alternative minimum tax.
- From that sum, subtract the greater of 1) your tentative minimum tax for the tax year or 2) 25% of the amount of your regular tax liability that exceeds $25,000 ($12,500 for married taxpayers filing separately, but only if both of them qualify for the credit)
If one spouse has no current or unused credit, the other spouse may use the entire $25,000 in determining their credit for the tax year.
How Do I File the General Business Credit?
To claim the general business credit, start by completing the specific tax forms for each individual credit you are taking. Next, carry over the total of all these credits to Form 3800, General Business Credit.
Which Tax Credits Are Included in the General Business Credit?
Dozens of tax credits can be used on the general business credit, including the investment credit, work opportunity credit, low-income housing credit, empowerment zone employment credit, credit for small employer pension plan startup costs, credit for employer-provided childcare facilities and services, energy efficient home credit, alternative motor vehicle credit, credit for small employer health insurance premiums, and the employer credit for paid family and medical leave. Keep in mind that some credits have expiration dates. A complete list is available on the IRS website.
Which Businesses Are Eligible for the General Business Credit?
According to the IRS, an eligible small business is any of the following:
- A non-publicly traded corporation
- A partnership
- A sole proprietorship
Additionally, the entity's average annual gross receipts during the prior three tax years can't exceed $50 million. If the business is less than three years old, base the average annual gross receipts on the period the business has existed.