In this guide
Does orthopedic surgery work qualify for the R&D tax credit?
Some of it does. Most surgical work applies established technique, and that work is out. The credit sits in the share where your surgeons develop a technique, construct, or instrumentation workflow under real technical uncertainty and evaluate alternatives to resolve it.
The work has to go past the implant maker's technique guide. Applying a finished technique to one more patient does not count. Work aimed at a class of cases, such as a complex fracture pattern, is the clearest fit, and it has to meet all four parts of the test.
One private medical practice we worked with claimed a $346,000 federal credit for surgical technique development. Yours may look nothing like it, which is why a study starts with a conversation.
How does the four-part test apply to orthopedic surgery?
Each protocol, technique, or method has to pass all four parts of the IRS test in Section 41(d), applied to orthopedic surgical work.
- 01
Permitted purpose
The work aims to create a new or improved function, performance, reliability, or quality in a technique, a fixation construct, or an instrumentation system.
- 02
Technological in nature
It relies on biomechanics, materials science, or tissue biology.
- 03
Elimination of uncertainty
At the start, the capability, method, or design is unknown, often for complex anatomy, difficult fracture patterns, or first-use parameters.
- 04
Process of experimentation
Modeling, simulation, or systematic trial and error, not routine use of the manufacturer's technique guide. Substantially all of the work has to be part of that process.
What does qualifying orthopedic R&D look like?
Three illustrative examples, each written to show work that can meet all four parts of the test.
A modified approach for hip and knee replacement
A joint replacement group developed a modified approach for total hip and knee arthroplasty, working through soft tissue release sequences, component positioning targets, and alignment strategies.
Each version of the approach was evaluated against the last across a documented series of cases.
A cutting guide workflow built from CT imaging
An orthopedic practice engineered its own workflow for designing custom cutting guides from segmented CT imaging, meant to work across a class of knee cases.
Resection planes, guide fit, and registration steps were iterated against intraoperative measurements. Producing a guide for an individual patient with the finished workflow is routine use, not research.
A bone void filler protocol
A surgical practice developed a protocol pairing a graft substitute with concentrated biologics, working through preparation, containment, and placement.
The team compared alternatives across a structured case series and recorded each change to the protocol.
Which orthopedic activities qualify?
Where orthopedic surgical work usually lands, and the records that support it.
| Activity | Why it may qualify | Records | Status |
|---|---|---|---|
| Surgical approach development | Approach and release sequences developed for a class of cases, with uncertainty beyond the technique guide, can qualify. | Records: Technique versions, iteration logs, case series records | Can qualify |
| Cutting guide and instrumentation workflows | Developing a guide design and registration workflow from imaging can qualify. Making a guide for one patient with an established workflow does not. | Records: Design revisions, accuracy data | Can qualify |
| Complex fracture fixation | Construct configuration and hardware sequencing developed beyond standard fixation protocols can qualify. | Records: Construct logs, union rate tracking | Can qualify |
| Bone void filler and biologic protocols | Preparation and delivery methods with biological uncertainty, worked out through structured trials, can qualify. | Records: Preparation logs, protocol versions | Can qualify |
| Tendon and ligament repair constructs | Repair constructs developed under real technical uncertainty, with alternatives tested and tracked in a structured way, can qualify. | Records: Biomechanical notes, construct records | Can qualify |
| Protocol refinement | Can count when it involves real technical re-evaluation. Minor adjustments within established standards do not. | Records: Comparison documents, revised protocols | Depends on facts |
| Routine procedures | Established technique with predictable results carries no technical uncertainty. | Records: Not applicable | Excluded |
| Billing, scheduling, and marketing | Management functions and marketing are excluded by law. Software built for these back-office tasks usually falls under the stricter internal-use software rules. | Records: Not applicable | Excluded |
What orthopedic practice costs count toward the credit?
Three kinds of spending carry almost every orthopedic claim. Wages are usually the largest.
Wages
Time surgeons, physician assistants, engineers, and clinical staff spent on development work, and the people who directly supervised or directly supported it.
Supplies
Materials the practice paid for and used up in development and testing, such as graft materials in bench preparation trials or print materials for test guides. Implants and other supplies used in treating patients, or bought by the hospital or surgery center, generally do not count.
Contract research
65% of what you paid outside firms for qualified research done on your behalf, under an agreement made before the work, when you pay whether or not the work succeeds and have a right to the results.
A credit can offset tax dollar for dollar. A $100,000 credit can offset up to $100,000 of income tax. Claiming it also reduces your research deduction by the same amount, or the credit can be taken at a reduced amount instead, so the net gain is less than the full credit. Most practices are pass-throughs, so owners see the benefit on their own returns.
When development work happens during procedures that patients or insurers pay for, an examiner may ask whether those payments fund the research. How that plays out depends on the facts.
How does an R&D study work for an orthopedic practice?
Four steps, built around how your clinical team already works.
- 01
Discovery call
Thirty minutes to size the likely credit and the strongest expense categories for your practice.
- 02
Clinical interviews
Surgeons, physician assistants, and clinical staff describe the work in clinical terms. We find the experimentation inside it.
- 03
Credit calculation
Both federal methods are run, and development time is separated from routine patient care.
- 04
Filing support
A package your CPA can file from, with the records needed to support the claim if the IRS asks questions.
Common questions from orthopedic practices
Can an orthopedic practice really qualify for the R&D tax credit?
Many can. The credit is not limited to device makers. Practices that develop their own techniques, constructs, or guide workflows under real technical uncertainty may have work that can qualify and has never been claimed.
Do patient-specific guides count?
Developing the workflow that produces them can count. Once the workflow is finished and in routine use, producing a guide for one more patient usually does not, because nothing is left to resolve and tailoring finished work to one patient is excluded.
Our CPA stopped claiming the credit after 2022. Should we look again?
It can be worth a second look. Section 174A lets businesses deduct domestic research costs in the year they are paid or incurred, for tax years beginning after December 31, 2024, instead of spreading them over five years. Years from 2022 through 2024 still follow the older rules, with some transition choices, and some of those choices had deadlines that have now passed. Your CPA will know which options apply to your returns.
Can a practice claim the credit for years it already filed?
Often, yes. Years that are still open, usually the last three, can be claimed on an amended return, and the credit can produce a refund only to the extent it reduces tax already paid. Partnerships under the federal partnership audit rules file an administrative adjustment request instead, and the partners generally see the benefit on a later year's return rather than as a refund for the earlier year. The payroll tax option for small businesses has to be chosen by the return's due date, including extensions, so it is usually not available for past years.