This is a common question, especially as more companies hire globally due to the increasing ease of remote work. No, international contractors can’t be included in an R&D tax credit claim. The IRS has a specific rule called the “foreign disallowance,” which prevents businesses from using the money spent on international contractors for R&D tax credits. The reason is straightforward: the R&D tax credit is tied to Social Security taxes, which foreign contractors don’t pay to the U.S. government.In contrast, payments made to U.S.-based contractors for R&D activities can be included in the R&D tax credit calculation. The government’s logic is that since U.S. contractors contribute to Social Security taxes, companies can receive a rebate on those taxes through the R&D tax credit. However, since foreign contractors don’t pay these taxes, there’s no corresponding rebate available, so their expenses are disallowed from the credit. Given the complexity of these regulations, it’s essential to work with a knowledgeable CPA firm when handling R&D tax credits.