Florida R&D tax credit: How your business can benefit

If your business conducts research and development activities in Florida, you may be eligible for the state’s R&D tax credit. This can help reduce your state tax liability and improve cash flow.

In this article, we’ll explain what exactly the R&D tax credit is, who is eligible for it, and what you need to do to claim it. So let’s jump straight in.

What is the Florida R&D tax credit?

The Florida R&D tax credit is a state incentive designed to encourage businesses to invest in research and development activities within the state. It allows eligible businesses to claim a credit against their corporate income tax based on their qualified research expenses (QREs) incurred in Florida.

The credit is calculated as 10% of your QREs that exceed your average QREs from the prior four years, and is capped at 50% of your corporate income tax liability in Florida.

It’s important to note that Florida sets an annual cap of $9 million in total R&D tax credits for all applicants, and they are awarded on a first-come, first-served basis.

What’s the difference between the Florida R&D tax credit and the federal R&D tax credit?

The main difference is that the federal credit applies to research conducted anywhere in the US, while the Florida credit is limited to expenses incurred within the state.

Other key differences include:

• Credit rate. Florida offers a 10% credit for qualified expenses exceeding the base amount, while the federal credit rate can be up to 20% (regular method) or 14% (alternative simplified method).

• Eligibility. Florida restricts eligibility to businesses in specific industries such as manufacturing, life sciences, and certain technology sectors.

• Carryforward period. Florida allows unused credits to be carried forward for up to five years, while the federal credit has a 20-year carryforward limit.

What are the benefits of the Florida R&D tax credit?

Claiming the Florida R&D tax credit offers your business several advantages, including:

• Reduced tax liability. The credit directly offsets your company’s corporate excise tax in Florida, helping to lower your overall tax burden.

• Carryforward period. If the credit cannot be fully used in the current tax year, it can be carried forward for up to five years.

• Support for innovation. The credit can help your businesses reinvest in research and development, leading to new products, technologies, and market expansion.

• Improved cash flow. Tax savings free up funds that can be used for growth, hiring, or additional R&D efforts.

If your business is engaged in a research-driven industry — such as technology, software, or manufacturing — the credit provides a tangible financial benefit that rewards innovation.

Who is eligible for the Florida R&D tax credit?

To qualify, your company must:

• Be a C corporation subject to the Florida corporate income tax.

• Operate in an eligible industry, including manufacturing, life sciences, physical sciences, information technology, or aviation/aerospace.

• Engage in activities that meet the IRS Section 41 definition of qualified research.

• Conduct research within Florida.

• Use a process of experimentation to develop or improve products, processes, or software.

• Incur QREs such as wages paid to R&D employees, supplies used in the research process, and contract research expenses.

How do you apply for the Florida R&D tax credit?

To apply for the Florida R&D tax credit, your business must follow these steps:

1. Identify your qualified research activities (QRAs)

First, review your internal projects and expenses to ensure they meet the eligibility criteria listed above.

2. Calculate the credit amount

The Florida R&D tax credit is calculated based on 10% of the increase in your QREs over a four-year base period.

For instance, say that your average QREs over the last four years are $1.75 million, and your current-year QREs are $2.5 million. The increase would be:

$2.5m - $1.75m = $750,000

You would then multiply this increase by 10%, as follows:

$750k x 10% = $75,000

However, as mentioned, the total credit amount cannot exceed 50% of your corporate tax liability. If your corporate tax liability in Florida is $120,000, you would exceed the limit as:

$120k x 50% = $60,000

In this instance, your final credit would be $60,000 (as this is the maximum available), although you would be able to carry forward the remaining $15,000.

3. Submit the credit application

As mentioned, applications are processed on a first-come, first-served basis until the state’s $9 million annual cap is met. As a result, you will need to apply for the R&D tax credit between March 20 and March 27 each year. 

4. File Form F-1120

If your business is approved for the credit, you must file Form F-1120 (Florida Corporate Income/Franchise Tax Return) and attach the approval notification.

5. Maintain proper documentation

Ensure that you keep detailed records of your R&D activities, expenses, and employee roles in case of an audit. Specifically, you should aim to:

• Maintain organized records. Keep thorough documentation of your projects, expenses, employee activities, and research methodologies.

• Track R&D expenses separately. If possible, maintain a separate ledger for R&D costs, making it easier to verify during an audit.

• Use time-tracking systems. If wages are part of your claim, ensure employees log the time spent on R&D projects.

• Retain supporting documents. To help validate your claim, keep supporting records such as contracts, invoices, prototypes, test results, and meeting notes.

Can you claim the federal R&D tax credit and the Florida R&D tax credit together?

Yes, your business can claim both the federal and Florida R&D tax credits. However, you must ensure that expenses claimed at the federal level are adjusted accordingly when calculating the state credit.

To learn more about claiming the federal R&D tax credit, check out our in-depth guide below:

Tax and Compliance —

6 min

How to claim the R&D tax credit in the US

The research and development (R&D) tax credit is a highly useful relief for many US businesses. Learn how to claim it in our in-depth guide.

Is the Florida R&D tax credit worth it?

If your business engages in any kind of innovative research, the Florida R&D tax credit can potentially provide a major financial advantage. However, to make the process efficient and simple, you need to keep full track of the compensation you’re paying to the employees who are contributing to your QRAs.

As a fully automated payroll system, Remote Payroll can provide you with this information quickly and accurately, making it more simple to calculate your eligible costs. Our system also enables your people to track their hours, improving the accuracy and validity of your claims.

To learn more about how we can help — and how we can simplify your entire payroll management system — speak to one of our friendly experts today.

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