Connecticut R&D Tax Credits

State and Federal Credits Available

20%

Incremental RC rate

RDC rate for QSBs

65%

Refund for QSBs

90%

Biotech refund rate

$1.5M

Annual refund cap

The Connecticut Research and Development Tax Credit and Research and Experimental Expenditures Tax Credit (RC Credit), administered by the Connecticut Department of Revenue Services, incentivize qualified research activities conducted within the state. Enacted under Conn. Gen. Stat. §§ 12-217j and 12-217n, these credits offset corporation business tax liabilities. As of November 28, 2025, enhancements under H.B. 7287 (Public Act 25-168, signed June 30, 2025) boost refund exchanges for qualifying small biotechnology companies.

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20%

Incremental RC rate

RDC rate for QSBs

65%

Refund for QSBs

90%

Biotech refund rate

$1.5M

Annual refund cap

Key Highlights

Tiered non-incremental rates up to 6% for small businesses, scaling for larger firms
Partial refunds available via exchange for unused credits, enhanced to 90% for small biotech QSBs effective 2025
Credits capped at 70% of corporation business tax liability (60% in 2022; 70% for 2023 and thereafter)
Applies only to qualified research expenses (QREs) conducted in Connecticut
Available to C corporations subject to corporation business tax; H.B. 7008 for pass-through entities introduced but not enacted as of November 28, 2025

Who Qualifies for the Connecticut R&D Tax Credit

Eligibility requires conducting qualified research activities (QRAs) in Connecticut that meet IRC § 41 standards, including technological uncertainty elimination through experimentation. Businesses must file as C corporation taxpayers under Chapter 208 (Corporation Business Tax). S corporations currently cannot claim due to no entity-level tax liability and lack of flow-through provisions.

Eligible Entities

C Corporation May claim both the regular and basic research credit
S Corporation Limited entity-level use; can pass credits to shareholders
Partnerships / LLCs Credits pass through to owners via Schedule K-1

Qualified Research Expenses (QREs)

How to Calculate the Connecticut R&D Tax Credit

Connecticut offers two distinct credits: the incremental RC Credit (20% on excess over base) and the non-incremental RDC Credit (flat or tiered rates). The same research dollars cannot be used in full for both RC and RDC in the same year. In practice, taxpayers typically run both calculations and use whichever formula gives the better result for a given year’s QREs. All calculations use Connecticut-sourced QREs only, aligned with IRC §§ 41 and 174. No Alternative Simplified Credit (ASC) option is available.

RC Credit (Incremental Method)

Determine total Connecticut QREs for the current tax year.
Compute base amount = QREs from the preceding tax year (single-year base).
Excess QREs = current QREs - base amount (base cannot exceed current QREs).
Credit = 20% × excess QREs, capped at 70% of tax liability.

Example Calculation

Current QREs = $2,000,000

Prior year base = $1,200,000

Excess =$800,000

→ Credit = 20% × $800,000 =$160,000

(For illustration: If excess over prior year reaches $2M, credit = 20% × $2M =$400,000, subject to liability cap.)

RDC Credit (Non-Incremental Method)

Applies a flat or tiered rate to total current-year Connecticut QREs. Qualified small businesses (QSBs, prior-year gross income $100M) receive 6%. Larger firms use tiered formula:

1% of QREs if ≤ $50M
$500,000 + 2% of excess over $50M if $50M–$100M
$1.5M + 4% of excess over $100M if $100M–$200M
$5.5M + 6% of excess over $200M if > $200M

Headquartered in an Enterprise Zone with > $3B revenue and >2,500 employees? Multiply QREs by 3.5% if higher.

Example Calculation

QREs =$2,000,000

→ Credit = 6% × $2,000,000 = $120,000

Example Calculation

Tier: $1.5M + 4% × ($150M - $100M) = $1.5M + 4% × $50M = $1.5M + $2M =$3.5M

Gross Receipts and Base Rules

Only research and experimental or research and development expenditures conducted in Connecticut count for these credits. Small business gross income thresholds for the 6% rate and for the exchange feature are based on the company’s total gross income, not just Connecticut sales.
No Connecticut activity in prior year? Base = 0 for RC Credit.
Startups benefit from low or zero base in early years.

Estimate Your Credits

Connecticut-Specific Rules

Connecticut's R&D credits feature targeted provisions for small businesses, biotech, and refunds to support innovation in pharmaceuticals, manufacturing, and tech sectors.

Partial Refund Exchange

Qualified small businesses (prior-year gross income $70M for exchange purposes) with no corporation business tax liability may exchange unused RC and RDC credits for a cash refund equal to 65% of the credit amount, capped at $1.5M annually. Qualifying small biotechnology companies (gross income $70M) receive 90% under 2025 H.B. 7287 expansions (biotechnology companies meeting the statutory definition).

High Incremental Rate

The 20% RC rate on growth over prior year drives high utilization for scaling firms, with no upper cap beyond the 70% liability limit. Ideal for manufacturers exceeding baselines.

Small Business Non-Incremental Option

QSBs ( $100M gross income) access a straightforward 6% RDC on total QREs, easing entry for startups without prior-year data; phases naturally as firms grow.

Other Unique Rules

2025 Biotech Enhancement (H.B. 7287) : Increases refund exchange to 90% for qualifying small biotechnology companies with $70M gross income, effective for income years beginning on or after January 1, 2025.
Enterprise Zone Bonus:3.5% multiplier for qualifying large HQ firms, boosting credits for in-zone projects.
Proposed Pass-Through Expansion:H.B. 7008 would extend credits to pass-through entities and sole proprietors effective January 1, 2026, but the bill was introduced in February 2025 and did not pass as of November 28, 2025.
Disregarded Entities: Certain wholly owned LLCs that are disregarded for tax purposes can generate RC or RDC credits that are claimed by their corporate owners when those owners are subject to the Connecticut corporation business tax.
Documentation Requirements:Submit detailed project descriptions, expense methods, and employee roles with Form CT-1120RC; retain appropriate records for audit support (for example, at least four years).
No Double-Dipping:Cannot claim both RC and RDC on identical QREs; elect annually. Carryforwards: RC credits can be carried forward up to 15 years. RDC credits earned in income years beginning on or after January 1, 2021 also have a 15-year carryforward limit (per 2021 statutory amendment); older RDC credits may continue to carry forward until used.

Partial Refund Exchange

High Incremental Rate

The 20% RC rate on growth over prior year drives high utilization for scaling firms, with no upper cap beyond the 70% liability limit. Ideal for manufacturers exceeding baselines.

Small Business Non-Incremental Option

QSBs ( $100M gross income) access a straightforward 6% RDC on total QREs, easing entry for startups without prior-year data; phases naturally as firms grow.

Other Unique Rules

2025 Biotech Enhancement (H.B. 7287) : Increases refund exchange to 90% for qualifying small biotechnology companies with $70M gross income, effective for income years beginning on or after January 1, 2025.
Enterprise Zone Bonus:3.5% multiplier for qualifying large HQ firms, boosting credits for in-zone projects.
Proposed Pass-Through Expansion:H.B. 7008 would extend credits to pass-through entities and sole proprietors effective January 1, 2026, but the bill was introduced in February 2025 and did not pass as of November 28, 2025.
Disregarded Entities: Certain wholly owned LLCs that are disregarded for tax purposes can generate RC or RDC credits that are claimed by their corporate owners when those owners are subject to the Connecticut corporation business tax.
Documentation Requirements:Submit detailed project descriptions, expense methods, and employee roles with Form CT-1120RC; retain appropriate records for audit support (for example, at least four years).
No Double-Dipping:Cannot claim both RC and RDC on identical QREs; elect annually. Carryforwards: RC credits can be carried forward up to 15 years. RDC credits earned in income years beginning on or after January 1, 2021 also have a 15-year carryforward limit (per 2021 statutory amendment); older RDC credits may continue to carry forward until used.

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Connecticut R&D Tax Credits Case Study

Real results from a Connecticut biotech startup recovering credits to fuel expansion.

$160,000

total state R&D tax credits earned

50%

of wages qualified for credits

$412,000

total R&D tax credits earned (federal + state combined)

Frequent Asked Questions

Connecticut's RC Credit provides 20% on incremental QREs over the prior year, while the RDC Credit offers 6% for small businesses (<$100M gross income) or tiered rates up to 6% for larger firms, per Conn. Gen. Stat. §§ 12-217j and 12-217n.

Activities must satisfy IRC § 41's four-part test: technological in nature, aimed at business component improvement, eliminating uncertainty, and involving experimentation. Examples include developing new software or improving manufacturing processes in Connecticut. Strike Tax verifies qualifying projects.

For $2M in QREs above the prior-year base, a business could save about $400,000 through the RC Credit (20% of the excess), before considering any federal benefit. In practice, you generally choose between the RC and RDC formulas for a given set of QREs in a year, rather than applying both to the same expenses. Use Strike Tax’s R&D Credit Calculator for personalized estimates.

Nonrefundable by default, but QSBs (<$70M gross income) can exchange unused credits for 65% cash refunds (90% for biotech in 2025), capped at $1.5M annually. Strike Tax maximizes refund elections.

File Form CT-1120RC with your corporation business tax return, including detailed documentation. For refunds, use Form CT-1120XCH. No pre-approval needed, but comply with federal IRC § 41. Strike Tax handles filing and substantiation.

Yes, stack state RC/RDC with federal IRC § 41 credits on the same Connecticut QREs for amplified savings. Strike Tax optimizes dual claims.

Pharma, biotech, and manufacturing see the highest returns due to high QREs and biotech refund bonuses (biotechnology companies meeting the statutory definition). Strike Tax customizes for your sector.

H.B. 7287 enhances refund exchanges to 90% for qualifying small biotechnology companies (<$70M gross income), effective for income years beginning January 1, 2025. Broader pass-through eligibility (H.B. 7008) was proposed for 2026 but not enacted as of November 28, 2025.

Tiered: 1% up to $50M QREs, scaling to $5.5M + 6% over $200M, capped at 70% of liability. Valuable for sustained R&D in tech hubs.

Strike Tax ensures compliant claims, maximizes refunds and carryforwards, and provides audit-ready documentation tailored to Connecticut's rules.

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