The Research and Development (“R&D”) Tax Credit is a tax incentive that can be applied as a dollar-for-dollar offset against a company’s tax liability if they are engaging in activities related to the design and development of a product, process, formula, invention, software, or technique within the United States.
A company can claim both the Federal R&D Tax Credit and state R&D Tax Credits, as there are over 30 states offering an R&D Tax Credit, with Connecticut being one of them. If you are a C-Corporation that has performed qualified research activities in Connecticut, you may be eligible to claim both the Research and Experimental (Incremental) Expenditures Credit and the Research and Development (Non-Incremental) Expenditures Credit. For taxpayers without state tax liability, the Connecticut Credits are especially valuable as they provide additional cash flow through the ability to exchange up to 65% of the credit received for a refund. Below are details of both credits available for any company with qualifying R&D activities within the state of Connecticut.
The Incremental Research and Experimental Expenditures (RC) Credit
- Equal to 20% of the excess of the research and experimental expenditures conducted in Connecticut during the current tax year over the amount spent on such expenditures during the preceding year.
- Used to offset up to 70% of tax due.
- Taxpayers with gross income for the previous year of less than $70 million that have no tax liability may exchange the credit for refund equal to 65% of the value of the tax credit.
- Can be carried forward for up to 15 years.
The Non-Incremental R&D Expenditures (RDC) Credit
- Equal to 6% of the current year’s R&D expenses for taxpayers with less than $100 million in gross income for the prior year.
- For all other business, the R&D Tax Credit is calculated as either: 1% of expenditures if R&D expenses were $50 million or less, $500,000 plus 2% over $50 million if R&D expenses were more than $50 million but not more than $100 million, and $1,500,000 plus 4% over $100 million if R&D expenses were more than $100 million but not more than $200 million.
- Used to offset up to 70% of tax due.
- Taxpayers with gross income for the previous year of less than $100 million that have no tax liability may exchange the credit for refund equal to 65% of the value of the tax credit.
- Can be carried forward indefinitely.
Both credit claims are due with the Connecticut tax filing, however, the state requires documentation of qualifying expenses and activities to be submitted along with the applications. It is important that this information is presented completely and accurately to avoid delays in receiving your due funds.
Case Study
To illustrate the potential value of the Connecticut R&D Tax Credits for your business, the case study below identifies the total Connecticut R&D Tax Credits generated given various levels of qualified research expenses (“QRE”) incurred per tax year.
| Year | Total Connecticut QRE | Incremental (RC) Credit | Non-Incremental (RDC) Credit | Total CT Credits |
|---|---|---|---|---|
| 2023 | $1,500,000 | $120,000 | $17,998 | $137,998 |
| 2022 | $900,000 | $60,000 | $36,000 | $96,000 |
| 2021 | $600,000 | $100,000 | $6,000 | $106,000 |
| 2020 | $100,000 | $15,600 | $1,320 | $16,920 |
For tax years 2020 through 2023, the Company qualified for over $355,000 in Connecticut R&D Tax Credits.
Next Steps
If you believe your company may qualify for the Connecticut R&D Tax Credit, it’s important to review your company’s unique circumstances with a R&D Tax Credit professional to determine whether an R&D Tax Credit Study is worth pursuing for your business. Withum provides a no-obligation complimentary assessment where your eligibility for the credit will be determined, and an estimated credit figure is provided.
Author: Darcey Long | [email protected]
Contact Us
For more information on this topic, please contact a member of Withum’s R&D Tax Credit Services Team.
