Connecticut R&D Tax Credits
Find out if you qualify for R&D tax credits in Connecticut and recharge your business
Connecticut provides research and development credits for C-Corporations. There are two credits are available for Connecticut (RC and RDC).
The incremental Research and Experimental Expenditures Credit ("RC Credit") is equal to 20% of the amount spent by the corporation directly on research and experimental expenditures over the amount spent on such expenditures incurring in the previous tax year. A Qualified Small Business ("QSB") that cannot take this tax credit in an income year in which it could otherwise be taken, as a result of having no tax liability, may exchange the credits for a refundable amount equal to 65% of the value of the tax credit (see Form CT-1120 XCH). Application MUST be made prior to the due date or extended due date of the return. The following information must accompany the filing of Form CT-1120RC:
- A full and complete description of the nature of the research projects conducted by the company during the income year, and the location(s) where the research is conducted;
- A full and complete description of the methods used to obtain the amount spent directly on research and experimental expenditures conducted in Connecticut;
- A detailed description of each source of information used to complete the tax credit, including the methods and calculations of expense allocation, if any; and
- The job title and detailed description of each employee whose wages are included in the research expenditures.
The non-incremental Research and Development Expenditures Credit ("RDC Credit") is also based on the amount of qualified R&D expenditures in Connecticut, and may be refundable for certain QSBs. For a QSB, the credit equals 6% of its qualified R&D expenditures. For all other companies, the RDC Credit is calculated as either:
- 1% of expenditures (if $50 million or less);
- $500,000 plus 2% of the excess over $50 million (if over $50 million but not over $100 million);
- $1.5 million plus 4% of the excess over $100 million (if over $100 million but not over $200 million); or
- $5.5 million plus 6% of the excess over $200 million.
- Depending on which calculation provides the higher credit amount, companies headquartered in an Enterprise Zone ("EZ") with revenues in excess of $3 billion, employing more than 2,500 employees, shall multiply their R&D expenses by 3.5% instead of using the calculation methods listed above.
Both the RC Credit and RDC Credit follows the definitions of IRC § 41 and IRC § 174, but have unique qualification criteria to consider. Specifically, the following R&D expenses may qualify:
- Expenditures incurred in connection with the taxpayer’s trade or business represent R&D costs in the experimental or laboratory sense;
- All costs incident to the development or improvement of a product, including any pilot model, process, formula, invention, technique, patent, or similar property. The product can be used by the corporation in its trade or business (internal R&D) or can be held for sale, lease, or license; or
- Costs of obtaining a patent, such as attorneys’ fees expended in making and perfecting a patent application.
The following are examples of IRC §174 expenses that do not qualify:
- Overhead and other expenses, such as general and administrative expenses, that relate to a corporation’s activities as a whole and do not contribute directly to the research and development effort; or
- The ordinary testing or inspection of materials or products for quality control, for efficiency surveys, management studies, consumer surveys, advertising or promotions, for research in connection with literary, historical, or similar projects; and
- The costs of acquiring another’s patent, model, production, or process.
Learn more about Connecticut's R&D Tax Credits here and here.
R&D Tax Credit Available:
Deadline for Tax Filing:
Due with Connecticut Tax Return
Data Required to Compute Credit:
Claim period Qualified R&D Expenses (QREs)
What Information is needed?
Qualified Research Expenses for Prior 1 Year
RC: 15 Years
The R&D tax credit equals:
- Incremental - RC Credit: 20% of the excess of the qualified research and experimental expenses during the current claim year over the qualified research and experimental expenses during the prior year.
- Non-incremental - RDC Credit: 6% of the research and development expenses (for QSB's only), or calculated according to the table above.
- Exchange of Tax Credit for Refund for QSBs (less than $70M of gross income in the previous year) is limited to $1,500,000 in a tax year.
Specific Items to Note:
- Qualified Small Business is defined as a company that has gross income of less than $70M in the previous income year.
- Credit applies only to corporate income tax (C-corps filing Form CT-1120).
- No credit is available for S-corps because they do not have a corporate tax liability, and there is no flow-through credit.