New Jersey R&D Tax Credits

State and Federal Credits Available

10% Credit

On excess NJ QREs plus basic research

7 to 15 Year Carryforward

7 years standard, 15 for priority tech fields

Sell for 80%+

NJEDA program for eligible tech and biotech firms

ASC Available

Same method as federal Form 6765

Unlock Innovation Incentives with the New Jersey Research and Development Tax Credit

The New Jersey Research and Development Tax Credit, governed by N.J.S.A. 54:10A-5.24 and administered by the New Jersey Division of Taxation, rewards businesses for conducting qualified research activities within the state. This nonrefundable credit offsets Corporation Business Tax (CBT) liabilities, encouraging advancements in technology, biotechnology, and manufacturing. Enacted in 1993 and aligned with federal IRC § 41 guidelines, it supports New Jersey’s large and growing tech and life sciences ecosystem.

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10% Credit

On excess NJ QREs plus basic research

7 to 15 Year Carryforward

7 years standard, 15 for priority tech fields

Sell for 80%+

NJEDA program for eligible tech and biotech firms

ASC Available

Same method as federal Form 6765

Key Highlights

Applies exclusively to research performed in New Jersey
Available to CBT taxpayers, including C corporations, S corporations, QSSS and corporate partners in partnerships; no pass through to individual shareholders or non-corporate partners
No credit cap, but cannot reduce tax below statutory minimum
2025 NJEDA impact reporting continues to show strong demand for the NOL/credit transfer program, with an annual $75 million allocation and high utilization

Who Qualifies for the New Jersey R&D Tax Credit

Eligibility hinges on performing qualified research in New Jersey—scientific experimentation or engineering to develop/improve products, processes, software, or techniques for trade/business use (per IRC § 41). Excludes routine data collection, social sciences, or funded research. Businesses must file CBT returns; partnerships allocate to corporate partners.

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 New Jersey R&D Tax Credit

New Jersey's R&D credit calculation closely follows federal IRC § 41 rules, using New Jersey-sourced QREs only. Taxpayers must use the same method as their federal return—regular (incremental) or Alternative Simplified Credit (ASC)—and this election applies consistently unless changed via federal amendment (requiring a corresponding New Jersey amendment). Basic research payments (e.g., to New Jersey universities or energy consortia) qualify at 10%. For combined groups, use federal consolidated rules with a three-factor allocation (property, payroll, receipts) for in-state apportionment.

Regular Method

Determine Total New Jersey QREs: Include wages for qualifying employees, supplies consumed in research, 65% of contract research payments, and computer leasing costs—all tied to New Jersey activities.
Compute Base Amount: Fixed-base percentage (historical QREs/gross receipts ratio) × average New Jersey gross receipts for the prior 4 years. Minimum base: 50% of current-year QREs. Gross receipts exclude non-New Jersey sales, returns, and non-tangible income.
Calculate Excess: Current QREs minus base amount.
Apply Credit Rate: 10% of excess + 10% of basic research payments.
QRE Deduction: New Jersey allows same-year deduction of NJ qualified research expenditures for CBT when both the federal and New Jersey R&D credits are claimed. If the federal R&D credit is not claimed, QREs used for the New Jersey credit must be added back under N.J.S.A. 54:10A-4(k)(11).

Example Calculation

A New Jersey software developer incurs $1,200,000 in QREs and $50,000 in basic research payments. Fixed-base percentage: 5%; average prior gross receipts: $10,000,000 → Base =5% × $10M = $500,000 (meets 50% minimum of $600,000? Use $600,000).

Excess = $1,200,000 - $600,000 =$600,000

Credit = 10% × $600,000 + 10% × $50,000 = $60,000 + $5,000 =$65,000

This offsets CBT liability; unused portions carry forward.

Alternative Simplified Credit (ASC)

Ideal for startups or firms with fluctuating QREs, ASC simplifies the base without historical gross receipts data.

Total Prior QREs: Sum New Jersey QREs over the prior 3 taxable years (0 if no prior QREs).
Base Amount: Divide that total by 6.
Excess: Current QREs minus base.
Credit: 10% of excess + 10% basic research.

Example Calculation

(Per Form 306, Part IV) Same firm:Prior 3-year total QREs = $1,200,000

Base = $1,200,000 / 6 =$200,000

Excess = $1,200,000 - $200,000 =$1,000,000

Credit = 10% × $1,000,000 + 10% × $50,000 = $100,000 + $5,000 =$105,000

Important: New Jersey follows the method used on your federal Form 6765. Changing from regular to ASC or vice versa normally requires amending both federal and New Jersey returns. File Form 306 annually; amendments allowed within 4 years. Startups use a 3% fixed-base for the first 5 years under regular method, phasing to 16% by year 10 (New Jersey receipts only).

Estimate Your Credits

New Jersey-Specific Rules

New Jersey's R&D credit features tailored provisions for high-tech sectors, emphasizing transferability and extended carryforwards to fuel innovation hubs like Princeton and Newark.

Transferable Credits for Tech and Biotech Startups

Unprofitable technology or biotechnology firms (225 U.S. employees) can sell unused R&D credits via the NJEDA Technology Business Tax Certificate Transfer Program—for at least 80% of value, up to a $20 million lifetime cap per firm. Annual pool: $75 million ($15 million set-aside for Innovation/Opportunity Zones or minority/women-owned businesses); application deadline: June 30, 2025. This provides immediate cash flow, with $30 million in credits disbursed in 2024.

Extended Carryforward for Priority Industries

Standard 7-year carryforward extends to 15 years for projects in advanced computing, advanced materials, biotechnology, electronic device technology, environmental technology, or medical device technology. This supports long-term R&D in New Jersey's life sciences cluster, allowing offsets against CBT.

ASC Election for Simplified Compliance

Since 2018, taxpayers using the federal ASC method on their federal return apply the same method for New Jersey, easing calculations for volatile R&D spenders. New Jersey allows same-year deduction of NJ qualified research expenditures for CBT when both the federal and New Jersey R&D credits are claimed, so the state credit does not require the same Section 280C deduction reduction seen federally.

Other Unique Rules

S-Corporation LimitationsS-Corps and QSSS claim credits only against entity-level CBT liability (no pass-through to shareholders via K-1). Credits often carry forward until the entity elects C-Corp status or joins a combined group.
Combined Group SharingCredits and carryforwards share freely among taxable members without certificates; non-taxable members' expenses qualify if apportioned via three-factor formula. Credits cannot reduce a member’s tax below its minimum assessment.
Cannabis and Payroll Election ProvisionsRegistered cannabis licensees may treat otherwise 280E-disallowed research-related expenses as NJ QREs. Qualified small businesses electing federal payroll offset (IRC § 41(h) and § 3111(f)) can still use those QREs for the New Jersey credit.
Audit and DocumentationRetain 4 years of records; IRS adjustments trigger New Jersey amendments. 2025 revisions to TB-114 clarify how New Jersey applies its same-year deduction rule for NJ QREs in light of OBBBA’s new federal Section 174 expensing options.
No Refunds or Minimum Tax ReliefCredits cannot create refunds or drop liability below statutory minimum (~$2,000 for C-Corps)

Transferable Credits for Tech and Biotech Startups

Extended Carryforward for Priority Industries

ASC Election for Simplified Compliance

Other Unique Rules

S-Corporation LimitationsS-Corps and QSSS claim credits only against entity-level CBT liability (no pass-through to shareholders via K-1). Credits often carry forward until the entity elects C-Corp status or joins a combined group.
Combined Group SharingCredits and carryforwards share freely among taxable members without certificates; non-taxable members' expenses qualify if apportioned via three-factor formula. Credits cannot reduce a member’s tax below its minimum assessment.
Cannabis and Payroll Election ProvisionsRegistered cannabis licensees may treat otherwise 280E-disallowed research-related expenses as NJ QREs. Qualified small businesses electing federal payroll offset (IRC § 41(h) and § 3111(f)) can still use those QREs for the New Jersey credit.
Audit and DocumentationRetain 4 years of records; IRS adjustments trigger New Jersey amendments. 2025 revisions to TB-114 clarify how New Jersey applies its same-year deduction rule for NJ QREs in light of OBBBA’s new federal Section 174 expensing options.
No Refunds or Minimum Tax ReliefCredits cannot create refunds or drop liability below statutory minimum (~$2,000 for C-Corps)

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New Jersey R&D Tax Credits Case Study

A Princeton-based biotechnology startup with 50 employees spent $2.5 million on qualified research in 2024. Using ASC, they claimed $250,000 in New Jersey credits (10% excess) plus $50,000 federal—totaling $300,000. Assuming a buyer pays 90% of face value under the NJEDA program, unused portions yielded $225,000 cash, funding Phase II trials and creating 15 jobs.

$250,000

total state R&D tax credits earned

60%

of wages qualified for credits

$500,000

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

Frequent Asked Questions

What is the New Jersey R&D tax credit?

The New Jersey R&D tax credit is a 10% incentive on excess qualified research expenses over a base amount, plus 10% on basic research payments, mirroring federal IRC § 41 but limited to New Jersey activities. It offsets Corporation Business Tax for C-Corps and eligible S-Corps, with no cap on credit generation.

What activities qualify for New Jersey’s R&D tax credit?

Qualifying activities involve technological uncertainty resolution through experimentation in New Jersey, such as developing new software algorithms or improving biotech processes. Routine quality control testing or market research does not qualify. Strike Tax reviews documentation to confirm IRC § 41 alignment.

How much can my business save with New Jersey’s R&D tax credit?

For $1 million in incremental QREs, a firm could claim $100,000 in credits, stackable with federal benefits. High-tech sectors often exceed $500,000 annually. Use Strike Tax’s calculator for a personalized estimate, factoring in carryforwards or transfers.

Are New Jersey R&D tax credits refundable for small businesses?

Credits are nonrefundable but transferable—small tech/biotech firms (<225 employees) can sell at least 80% of unused value via NJEDA, providing cash equivalent. $30 million in credits were disbursed in 2024.

How do I apply for New Jersey’s R&D tax credit?

File Form 306 with your CBT-100 return (due April 15 for calendar year). Include prior-year forms for base calculations. Amendments allowed within 4 years. Strike Tax handles substantiation and filing to ensure compliance.

Can New Jersey businesses claim both state and federal R&D credits?

Yes, stack state and federal credits on the same New Jersey QREs for amplified savings—producing combined benefits that can approach 30 percent in some cases. However, add back state deductions if not federally claimed. Strike Tax optimizes dual filings.

What are the carryforward rules for New Jersey R&D credits?

Unused credits carry forward 7 years generally or 15 years for priority industries (e.g., biotechnology, advanced materials). They cannot offset minimum tax but share within combined groups.

Why is New Jersey’s R&D credit valuable for tech companies?

With 15-year extensions for tech fields and at least 80% transferability for startups, it fuels New Jersey's innovation corridor. Firms in Princeton's tech parks recover 10–20% of R&D costs annually.

How does the ASC method benefit New Jersey startups?

ASC uses a simple base of prior 3-year total QREs divided by 6, ideal for early-stage firms without long histories. It often yields higher credits than regular method.

What are the 2025 changes to R&D tax credits in New Jersey?

Federal OBBBA restores permanent full expensing of domestic research under Section 174A for years after 2024; Form 6765 requires Section G for claims >$10,000. Updated TB-114 (November 2025) clarifies NJ same-year QRE deductions amid these changes.

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