There have been major changes to the New Jersey R&D Credit that are prospective only for tax periods beginning on or after January 1, 2018. The New Jersey R&D credit provides a credit roughly equal to 10% of the excess of qualified research expenses over the base amount.

New Jersey mirrors the federal definition of QREs, as defined by IRC § 41(b). For tax years ending on or after July 31, 2019, taxpayers should use the Federal rules for computing the New Jersey R&D Credit that are applicable to consolidated groups if the taxpayers are a taxable member of a combined group included on a New Jersey combined return.

Unlike the Federal R&D credit, the New Jersey R&D credit is only applicable for qualifying C-Corps and in rare circumstances S-Corps.  However, no credits can be passed through to shareholders.

There is generally a 7 year carryforward period for unused credits.  Alternatively, there is a 15 year carryforward period for credits directly tied to projects involving specific study fields (see below).

Learn more about New Jersey's R&D Tax Credit law from Form 306.

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R&D Tax Credit Available:

Yes

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Eligible Entities:

C-Corporations

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Deadline for Tax Filing:

Due with New Jersey Tax Return

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Data Required to Compute Credit:

Claim Period New Jersey Qualified R&D Expenses (QREs)

Prior 4 years of Gross Receipts

Prior 3 years of New Jersey QREs

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What Information is needed?

Federal Form 6765

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Credit Carryforward:

7 Years

15 years for specific industries (see below)

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The R&D tax credit equals:

10% of the excess of the NJ qualified research expenses for the tax period over the base amount; plus

10% of basic research payments for the tax period.

Specific Items to Note:

Effective Jan 1, 2018, New Jersey allows the alternative simplified method (ASC) to calculate the state credit, however there is no Section 280C conformity.

The standard carryforward period for New Jersey R&D credits is 7 years; however, companies in the following industries can carry forward any unused R&D credit up to 15 years:

• Advanced computing;
• Advanced materials;
• Biotechnology;
• Electronic device technology;
• Environmental technology; and
• Medical device technology.

A New Jersey S-Corporation is allowed to claim a credit in connection with increasing research activities to the extent of its New Jersey corporation tax liability. Pass-through of this credit to shareholders is not permitted.

For Federal Payroll Tax Credit Claims: Pursuant to I.R.C. § 41(h)(1), the corporate income tax credit under I.R.C. § 41(a) and the allowable payroll credit under I.R.C. § 41(h)(1) and § 3111(f) are separate and distinct credits. The New Jersey Corporation Business Tax Research and Development Tax Credit is based on the federal corporate income tax credit. These expenses may not be used for the New Jersey R&D credit. Do not use these amounts in the above calculation of the New Jersey credit.

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