R&D Tax Credit Connecticut

C-corporations are incentivized to invest in research and development with Connecticut R&D Tax Credit program. This non-refundable credit allows companies to claim a 20% credit on the increase in R&D expenses incurred within the state, with an additional 6% credit available on non-incremental R&D expenses, after accounting for Qualified Research Expenses. The incremental R&D tax credit can be carried forward for 15 consecutive years, offering long-term benefits for companies that continuously invest in innovation. It should be noted that the R&D Tax Credit is not eligible for carryback

Connecticut businesses may be able to claim research and development (R&D) expenses as tax credits. Qualifying expenses include those related to experimental research and product development. To be eligible for Connecticut’s R&D tax credit, businesses must have incurred federal R&D expenses and must have paid for R&D and basic research activities that were conducted within the state. It’s worth noting that the expenses must not have been funded by grants or contracts with public or private entities, unless these entities are included in a combined tax return with the business that incurred the expenses.

It’s important to keep in mind that the expenses must be directly linked to qualifying research and development activities and must have been incurred within Connecticut. There may also be exclusions and limitations on certain qualifying expenses that businesses should be aware of.

Small businesses with an annual gross income of $100 million or less, including related entity transactions, are eligible for a 6% tentative tax credit on their R&D expenses. Conversely, large companies located in an enterprise zone and employing over 2,500 individuals in Connecticut, with annual revenues exceeding $3 billion, may receive a 3.5% tentative credit on their R&D expenses, whichever is greater as calculated according to the statutory schedule.

The percentage of the R&D tax credit that a business may claim depends on the amount of its R&D spending. For R&D spending that is less than or equal to $50 million, the credit percentage is 1%. For R&D spending that exceeds $50 million but is less than or equal to $100 million, the credit percentage is $500,000 plus 2% of the R&D spending that exceeds $50 million. For R&D spending that exceeds $100 million but is less than or equal to $200 million, the credit percentage is $1.5 million plus 4% of the R&D spending that exceeds $100 million. Finally, for R&D spending that exceeds $200 million, the credit percentage is $5.5 million plus 6% of the R&D spending that exceeds $200 million. It’s important for businesses to keep in mind the spending thresholds and associated credit percentages when calculating their potential R&D tax credit.

A business may claim one-third of its tentative tax credit amount, after applying any wage base reduction, in the year it files its corporation income tax return.

The Connecticut R&D Tax Credit requires a comprehensive understanding of the research projects carried out by a company during the taxable year. This includes a thorough explanation of the nature of the projects, as well as the locations where the research was conducted. If the business is eligible for a R&D credit but cannot claim a R&D credit in any year because it has no tax liability, the business can exchange this credit for a cash refund equal to 65% of the credit amount.