The R&D tax credit can help a wide variety of businesses offset and reduce their income tax liability, in addition to providing many other benefits.
Based on their qualified research expenses in the state, Pennsylvania’s R&D tax credit offers 20% for small businesses and 10% for large businesses. To determine the credit, qualifying research expenses for the current year are reduced from the base amount, which is equal to the lesser of 50% of expenses or the average of the preceding four years’ qualified research expenses. To qualify as a “Qualified Small Business,” for-profit corporations, limited liability companies, partnerships, or proprietorships must have a net book value of assets less than $5 million at the beginning or end of the taxable year when incurring the qualified research and development expense, as reported on the balance sheet.
Businesses involved in research and development can take advantage of Pennsylvania’s generous R&D Tax Credit program. Companies must spend a particular amount on research in order to qualify for this program. Businesses can obtain up to 10% of their Pennsylvania qualifying research expenses above the base amount by submitting an application for this tax credit. Yet, this benefit can increase to a whopping 20% for eligible small firms. The base amount is derived as the average of the Pennsylvania qualifying research expenses over the preceding four years. Filling out an online application is the only relatively simple step in the process of obtaining credit.
To qualify for Pennsylvania R&D Tax Credit, the company should meet the following criteria:
The Federal and Pennsylvania schemes differ significantly when it comes to research and development (R&D) credits. First off, the eligible research must be conducted inside the state of Pennsylvania and the entire R&D credit is capped at $55 million, with $11 million reserved especially for eligible small enterprises. Furthermore, Pennsylvania’s credit rate is 10% or 20% for eligible small companies. Pennsylvania research credits that are overused may be carried over for a maximum of fifteen years, but they cannot be returned. The Pennsylvania R&D credit does not currently include a sunset clause, in contrast to the federal scheme.
Corporations that incur research and development costs can apply for the R&D tax credit. Pennsylvania’s R&D Tax Credit Program is unique in that it allows companies to sell any unused R&D tax credits, providing additional funding to improve and expand their business. This program is particularly beneficial to startups and small businesses that may not have the capital to fully utilize their R&D tax credits. By selling these credits, companies can obtain the necessary funding to continue their research and development efforts, further advancing their technological capabilities and staying competitive in their respective industries.
The Pennsylvania research and development tax credit allows for businesses to claim a percentage of their qualifying research expenses.
Wages paid to employees who are directly involved in the performance of research and development activities within the state of Pennsylvania. This includes payments made to subcontractors involved in the performance of such activities.
Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and also determine any state R&D tax credit availability. Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.