State R&D tax credits in the US: What your business needs to know

If your business conducts research and development (R&D) activities in the US, you may be eligible for the federal R&D tax credit. This handy incentive encourages innovation, and is hugely useful for businesses in research-intensive industries, such as technology, engineering, and manufacturing.

However, you might not be aware that many US states also offer their own R&D tax credits as well, offering extra incentives and potential savings if you’re conducting research activities in those states.

In this article, we’ll explore these R&D credits by state, and cover the key things you should know before applying. So let’s jump straight in.

What is the difference between state and federal R&D tax credits?

The federal R&D tax credit is a nationwide incentive that allows businesses to claim a credit for qualified research expenses (QREs) related to innovation, product development, or process improvements. It is governed by the Internal Revenue Code (IRC) Section 41 and can be applied to offset federal income tax liability or, for eligible small businesses, payroll taxes.

To learn more about the federal R&D credit — and how to apply for it — 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.

Alternatively, state R&D tax credits vary in terms of eligibility, credit calculation, and how they can be applied. Some states offer credits that mirror the federal program, while others have unique rules, refundability options, or carryforward provisions.

Can you claim federal and state R&D tax credits together?

Yes, your business can claim both federal and state tax credits, provided you meet the eligibility criteria for both. However, it's crucial to calculate federal and state credits separately, ensuring compliance with each jurisdiction’s rules.

Which US states offer R&D tax credits?

In all, 36 states currently offer their own individual R&D tax credit. Here’s a breakdown of each one:

Arizona R&D tax credit

Arizona provides a 24% credit on the first $2.5 million in QREs and 15% for expenses exceeding that amount. Note that small businesses with fewer than 150 employees may be eligible for a refundable credit if they meet specific criteria, although you may need pre-approval from the Arizona Commerce Authority.

To apply, you must file Form 308 (Credit for Increased Research Activities) with your Arizona corporate tax return. Unused credits can be carried forward for 10 years.

Arkansas R&D tax credit

Arkansas offers several R&D tax credits, with rates and eligibility varying based on the type of research conducted. Businesses conducting in-house R&D can receive a 20% credit on QREs exceeding the prior year’s expenses, while those partnering with universities may qualify for a 33% credit on eligible expenditures. Additional incentives exist for research in specific industries or for businesses in targeted economic areas.

Credits are non-refundable but can be carried forward for up to nine years. To apply, you must submit documentation to the Arkansas Department of Finance and Administration along with your state tax return.

California R&D tax credit

California offers a 15% credit on incremental QREs over a base amount, while qualified nonprofit research organizations can claim a 24% credit for basic research. The state does not conform to the federal alternative simplified method, meaning your business must use the fixed-base percentage method to calculate your credit.

Unlike the federal credit, California does not allow payroll tax offsets, but unused credits can be carried forward indefinitely. You must file Form FTB 3523 with your California tax return to claim the credit.

Tax and Compliance —

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

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Colorado R&D tax credit

Colorado offers a 3% credit on increased QREs conducted within designated Enterprise Zones. To qualify, your business must increase its R&D spending compared to the prior two years, and you must confirm that your company’s location is eligible. The credit is non-refundable but can be carried forward for up to four years.

To claim the credit, you must file Colorado Form DR 0077 along with your state corporate tax return.

Connecticut R&D tax credit

Connecticut offers two R&D tax credits: a 20% credit on QREs exceeding the prior year’s expenses, and a 6% to 6.5% credit on total QREs, depending on your business size. Unused credits can be carried forward for up to 15 years, and certain small businesses with no tax liability may qualify for a partial refund of unused credits.

To claim the credit, you must file Form CT-1120RC with your Connecticut corporate tax return.

Delaware R&D tax credit

Delaware offers an R&D tax credit equal to 10% of the federal credit or 20% for businesses located in designated Delaware Targeted Growth Areas. The credit is non-refundable but can be carried forward for up to 15 years.

Unlike some states, Delaware’s credit calculation is directly tied to the federal R&D credit, simplifying the application process. To claim it, your business must submit Delaware Form 2070AC along with its state tax return.

Florida R&D tax credit

Florida offers a 10% credit on QREs that exceed your average QREs from the prior four years, but the total credit amount cannot exceed 50% of your Florida corporate income tax liability (unused credits can be carried forward for up to five years). It’s also important to note that the state imposes a $9 million annual cap on total credits, which are awarded on a first-come, first-served basis.

To qualify, eligible businesses must operate in qualified industries such as manufacturing, life sciences, and technology. You must submit an application to the Florida Department of Revenue between March 20 and March 27 each year and, if approved, claim the credit on Form F-1120.

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

If your business is engaged in research, you may be eligible for the Florida R&D tax credit. Here’s everything you need to know about making a claim.

Georgia R&D tax credit

Georgia offers an R&D tax credit equal to 10% of your business’s QREs exceeding a base amount, with the credit limited to 50% of your Georgia corporate income tax liability for the year. Any unused credits can be carried forward for up to 10 years.

Notably, businesses with excess credits can use them to offset Georgia payroll withholding taxes, providing additional flexibility. To claim the credit, file Form IT-RD along with your Georgia corporate tax return.

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

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Hawaii R&D tax credit

Hawaii offers a 20% refundable R&D tax credit for businesses conducting qualified research within the state, aligning with the federal definition of QREs. This credit is unique because it is fully refundable, meaning businesses can receive a cash refund if their credit exceeds their tax liability.

To qualify, you must file an annual survey with the Hawaii Department of Business, Economic Development & Tourism (DBEDT) and claim the credit on Hawaii Form N-346 with your state tax return.

Idaho R&D tax credit

Idaho offers a 5% non-refundable R&D tax credit for businesses incurring QREs within the state. Unused credits can be carried forward for up to 14 years or carried back for one year.

To claim the credit, your business must file Idaho Form 67 along with its state corporate tax return.

Illinois R&D tax credit

Illinois offers a 6.5% credit on incremental QREs that exceed the average QREs from the prior three years. The credit is non-refundable but can be carried forward for up to five years.

Unlike some states, Illinois does not impose industry restrictions, making it broadly available to businesses conducting qualified research.

To claim the credit, your business must file Illinois Schedule 1299-D along with its corporate tax return.

Indiana R&D tax credit

Indiana offers a 15% credit on the first $1 million of QREs and 10% on QREs exceeding $1 million, based on the increase in QREs over a base amount. The credit is non-refundable but can be carried forward for up to 10 years. There is no carryback provision, and the credit cannot be used to offset other taxes.

To claim the credit, your business must file Indiana Form IT-20 and Schedule IN-RC with its state tax return.

Iowa R&D tax credit

Iowa offers a 6.5% refundable R&D tax credit on incremental QREs that exceed the base amount, following the federal credit calculation. Because the credit is refundable, your business can receive a cash refund if the credit exceeds its tax liability.

Unused credits do not need to be carried forward, making this an attractive incentive for businesses investing in R&D. To claim the credit, your business must file Iowa Form IA 128 along with its state tax return.

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Kansas R&D tax credit

Kansas offers a 6.5% non-refundable R&D tax credit on QREs that exceed your average QREs from the prior three years. Unused credits can be carried forward for up to four years, but there is no carryback provision.

It’s important to note that the credit is only available to C corporations, meaning pass-through entities such as LLCs and S corporations do not qualify. To claim the credit, your business must file Kansas Schedule K-53 along with its state tax return.

Kentucky R&D tax credit

Kentucky offers a state R&D tax credit equal to 5% of QREs conducted within the state. The credit is non-refundable but can be carried forward for up to 10 years. It can only be used to offset Kentucky corporate income tax liability and cannot be applied to other taxes.

To claim the credit, your business must file Kentucky Schedule QR with its state tax return.

Louisiana R&D tax credit

Louisiana offers an R&D tax credit of up to 30% of QREs, depending on business size and research spending trends. Small businesses with 50 or fewer employees qualify for the 30% credit, while larger businesses receive 5% to 10%, depending on whether their QREs have increased or decreased compared to prior years. The credit is non-refundable but can be carried forward for up to 10 years.

To claim the credit, your business must file Louisiana Form R-620 along with its state tax return.

Tax and Compliance —

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

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Maine R&D tax credit

Maine offers two R&D tax incentives: the R&D Super Credit and the Regular R&D Credit.

The R&D Super Credit applies to QREs that exceed 150% of the business’s average QREs over the prior three years but is subject to a 50% tax liability cap and has been largely phased out. The Regular R&D Credit is equal to 5% of eligible QREs plus 7.5% of basic research payments.

The credit is non-refundable but can be carried forward for up to 15 years. To claim, your business must file Maine Form 1040RC with its state tax return.

Maryland R&D tax credit

Maryland also offers two R&D tax credits: the Basic R&D Credit and the Growth R&D Credit.

The Basic R&D Credit provides 3% of QREs that exceed the prior four-year average, while the Growth R&D Credit offers 10% of QREs that exceed 50% of the prior four-year average.

The total credits are subject to an annual state cap and may be prorated if demand exceeds available funds. The Basic Credit is refundable for small businesses, while other unused credits can be carried forward for up to seven years.

To claim the credit, your business must submit an application to the Maryland Department of Commerce by September 15 and file Maryland Form 500CR with its state tax return.

Massachusetts R&D tax credit

Massachusetts offers an R&D tax credit of 10% on QREs and 15% on basic research payments to qualifying institutions, following the federal definition of QREs. Businesses can also use an alternative calculation method, which provides a 5% credit on QREs exceeding a base amount.

The credit is non-refundable but can be carried forward for up to 15 years, and excess credits may be used to offset payroll withholding taxes for certain small businesses.

To claim the credit, your business must file Massachusetts Schedule RC with its state tax return.

Tax and Compliance —

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

If your business is engaged in research, you may be eligible for the Massachusetts R&D tax credit. Here’s everything you need to know about making a claim.

New Jersey R&D tax credit

New Jersey also follows the federal definition, offering an R&D tax credit of 10% on QREs and 15% on basic research payments to qualifying institutions. The credit is non-refundable but can be carried forward for up to seven years.

Additionally, small businesses with fewer than 225 employees (worldwide) may be eligible to sell unused credits through the state’s Technology Business Tax Certificate Transfer Program, providing a way to monetize excess credits.

To claim the credit, your business must file New Jersey Form 306 with its state tax return.

Minnesota R&D tax credit

Minnesota offers a 10% R&D tax credit on the first $2 million of QREs and 4% on QREs exceeding $2 million. The credit is non-refundable but can be carried forward for up to 15 years.

Minnesota’s credit follows the federal definition of QREs, making it easier for businesses already claiming the federal credit. Additionally, pass-through entities such as S corporations and partnerships can apply the credit against their individual income tax liability.

To claim the credit, your business must file Minnesota Form RD with its state tax return.

Missouri R&D tax credit

Missouri offers an R&D tax credit of up to 15% of QREs or 20% if the research is conducted in collaboration with a Missouri college or university. The program has a statewide annual cap of $10 million, with credits allocated on a first-come, first-served basis.

The credit is non-refundable but can be carried forward for up to 12 years.

To apply, your business must submit an application to the Missouri Department of Economic Development for pre-approval and then file the approved credit with your state tax return.

Nebraska R&D tax credit

Nebraska offers an R&D tax credit equal to 15% of the federal credit for QREs conducted within the state. Businesses located in designated economically distressed areas qualify for an enhanced 35% credit.

The credit is refundable, meaning businesses can receive a cash refund if the credit exceeds their tax liability. To claim it, your business must file Nebraska Form 3800N with its state tax return.

New Hampshire R&D tax credit

New Hampshire offers an R&D tax credit based on wages paid to employees conducting qualified research in the state. The total statewide credit is capped at $7 million per year, and individual businesses can receive a credit of up to 10% of their eligible wages, with a maximum of $50,000 per company per year.

The credit is non-refundable but can be carried forward for up to five years. To apply, your business must submit an application to the New Hampshire Department of Revenue Administration by June 30, and file Form DP-165 with your state tax return.

Pennsylvania R&D tax credit

Pennsylvania offers an R&D tax credit of 10% on QREs that exceed the prior three-year average, with small businesses (gross receipts under $5 million) eligible for a 20% credit. The state allocates a total of $55 million annually to the program, with a portion reserved for small businesses.

The credit is non-refundable but can be sold or assigned to other businesses if unused. To apply, your business must submit an application to the Pennsylvania Department of Revenue by September 15 and file PA Schedule RC with its state tax return.

New Mexico R&D tax credit

New Mexico offers two R&D tax credits: the Technology Jobs and Research & Development (TJRD) Tax Credit and the Additional R&D Tax Credit.

The TJRD Credit provides a 5% credit on QREs, or 10% if the research is conducted in a rural area. The Additional R&D Credit offers an extra 5% or 10% credit if the business increases its workforce. Both credits are refundable for small businesses and non-refundable with a three-year carryforward for larger companies.

To claim the credit, your business must file New Mexico Form RPD-41385 with its state tax return.

New York R&D tax credit

New York offers the Excelsior Research and Development Tax Credit, which provides a 50% refundable credit on the federal R&D credit amount for businesses participating in the Excelsior Jobs Program. Additionally, the state offers the QETC (Qualified Emerging Technology Company) R&D Credit, which provides a 9% credit on QREs for small technology firms.

The Excelsior Credit is refundable, while the QETC Credit is non-refundable but can be carried forward for up to 10 years.

To apply, your business must be certified by Empire State Development and file Form CT-607 or CT-646 with its state tax return.

North Dakota R&D tax credit

North Dakota offers an R&D tax credit of 25% on the first $100,000 of QREs and 8% on QREs exceeding $100,000, following the federal definition of qualified research. The credit is non-refundable but can be carried forward for up to 15 years, or carried back for up to three years.

Note that small businesses with annual gross receipts under $750,000 may be eligible for a fully refundable credit.

To claim the credit, your business must file North Dakota Form 40 with its state tax return.

Ohio R&D tax credit

Ohio offers the R&D Investment Tax Credit, which provides a 7% non-refundable credit on QREs exceeding the prior three-year average. The credit can be carried forward for up to seven years but cannot be refunded or carried back.

Note that it is available only to businesses that pay the Ohio Commercial Activity Tax (CAT), meaning it is not applicable to all entities.

To claim the credit, your business must file the Ohio IT-1040 or applicable corporate tax forms with its state tax return.

Vermont R&D tax credit

Vermont offers an R&D tax credit equal to 27% of the federal R&D credit for QREs incurred within the state. The credit is non-refundable but can be carried forward for up to 10 years.

Vermont’s credit calculation directly follows the federal R&D credit structure, making it easier for businesses already claiming the federal credit. To claim the credit, your business must file Vermont Form BA-404 with its state tax return.

Rhode Island R&D tax credit

Rhode Island offers an R&D tax credit of 22.5% on the first $111,111 of QREs and 16% on QREs exceeding that amount. The credit is non-refundable but can be carried forward for up to seven years. Additionally, businesses investing in qualified research property may be eligible for an additional 10% credit on those expenditures.

To claim the credit, your business must file Rhode Island Form RI-7690 with its state tax return.

South Carolina R&D tax credit

South Carolina offers an R&D tax credit equal to 5% of QREs incurred within the state. The credit is non-refundable but can be carried forward for up to 10 years, with a limitation that it cannot exceed 50% of the company’s state tax liability in any given year.

The credit follows the federal definition of QREs, making it easier for businesses already claiming the federal credit. To claim, your business must file South Carolina Form TC-18 with its state tax return.

Texas R&D tax credit

Texas offers the Research & Development Franchise Tax Credit, which provides a credit of 5% on QREs exceeding the base amount, or 6.25% if conducted with a Texas higher education institution. Businesses can alternatively elect to claim a state sales tax exemption on purchases of certain R&D equipment instead of the credit.

The credit is non-refundable but can be carried forward for up to 20 years. To claim, your business must file Texas Form 05-178 with its franchise tax report.

Utah R&D tax credit

Utah offers an R&D tax credit of 5% on QREs that exceed the prior three-year average, along with a 7.5% credit for payments made to qualified research organizations such as universities. The credit is non-refundable but can be carried forward for up to 14 years.

Utah follows the federal definition of QREs, simplifying the calculation process for businesses already claiming the federal credit. To claim the credit, your business must file Utah Form TC-40R with its state tax return.

Virginia R&D tax credit

Virginia offers two R&D tax credit options: the Research and Development Expenses Tax Credit and the Major R&D Expenses Tax Credit.

The Research and Development Expenses Tax Credit provides a 15% credit on QREs, or 20% if conducted with a Virginia university, with a statewide cap of $7.77 million annually. The Major R&D Expenses Tax Credit is for businesses with QREs exceeding $5 million, offering a 10% credit with a $24 million annual cap. Both credits are non-refundable, but they can be carried forward for 10 years.

To claim, your business must apply with the Virginia Department of Taxation by July 1 and file Form RDC with its state tax return.

Wisconsin R&D tax credit

Wisconsin offers an R&D tax credit of 5.75% on QREs exceeding the prior three-year average, following the federal definition of QREs. Additionally, businesses engaged in qualified research related to internal combustion engines or energy-efficient products may qualify for an enhanced 11.5% credit. The credit is partially refundable, allowing businesses to receive a cash refund of up to 10% of the unused credit while carrying forward the remainder indefinitely.

To claim the credit, your business must file Wisconsin Schedule R with its state tax return.

How can Remote help?

If your business engages in any kind of innovative research, claiming both the state and federal 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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