Delaware R&D Tax Credits

State and Federal Credits Available

10%

Rate on excess QREs

20%

Rate for small businesses ( $20M gross receipts)

Fully Refundable

Unused credits paid as cash

Annual Election

Independent of federal method

The Delaware Research and Development Tax Credit, governed by Del. Code Ann. tit. 30, §§ 2070-2075 and administered by the Delaware Division of Revenue, incentivizes innovation by providing a fully refundable credit for qualified research expenses (QREs) conducted within the state. This credit offsets corporate income tax liabilities or results in direct cash refunds for unused portions, making it particularly valuable for startups and growth-stage companies in sectors like biotechnology, finance, and manufacturing.

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10%

Rate on excess QREs

20%

Rate for small businesses ( $20M gross receipts)

Fully Refundable

Unused credits paid as cash

Annual Election

Independent of federal method

Key Highlights

10% credit on excess QREs over base (20% for businesses with < $20M gross receipts)
Alternative: 50% of apportioned federal Alternative Simplified Credit (ASC); 100% for small businesses
Fully refundable with no carryforward needed
Applies only to Delaware-sourced research activities
Available to C corps, S corps, partnerships, and LLCs
Annual application required by September 15 via Form 2070AC

Who Qualifies for the Delaware R&D Tax Credit

Eligibility requires conducting qualified research activities (QRAs) in Delaware that meet federal standards under IRC § 41, with QREs apportioned to the state based on activities performed within its borders. Businesses must apply annually for approval from the Delaware Division of Revenue.

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 Delaware R&D Tax Credit

Delaware offers two elective methods for calculating the credit: the regular incremental method or a share of the federal Alternative Simplified Credit (ASC). Both use only Delaware-apportioned QREs. The election is made annually on the application (Form 2070AC) and applies to the entire credit for that year. Taxpayers must maintain records of prior 4 years’ Delaware QREs and gross receipts, since that data is required for Form 2070AC.

Regular Method

Determine total Delaware-apportioned QREs for the tax year.
Compute the base amount: fixed-base percentage × average Delaware gross receipts for the prior 4 years (minimum 50% of current-year QREs).
Calculate excess QREs = current QREs - base amount.
Apply the credit rate: 10% of excess (or 20% if the business meets Delaware’s small business test).

Example Calculation

QREs =$1,500,000

Base =$800,000

Excess =$700,000

For a standard business: Credit = 10% × $700,000 = $140,000

Alternative Simplified Credit (ASC)

This method simplifies the base calculation and is ideal for businesses with fluctuating QREs or limited historical data.

Calculate the federal ASC: 14% of current QREs exceeding 50% of the average QREs from the prior 3 years (or 0% base if no prior QREs).
Apportion the federal ASC to Delaware based on the ratio of Delaware QREs to total QREs.
Credit = 50% of the Delaware-apportioned federal ASC (100% for small businesses).

Example Calculation

Federal ASC = $200,000 (apportioned 75% to DE =$150,000)

DE Credit = 50% × $150,000 =$75,000

Gross Receipts for Base Calculation

Use gross receipts as defined under Delaware’s corporate apportionment rules, adjusted for Delaware’s definition of “gross receipts” in Title 30. This generally starts from federal taxable income and includes sales and certain royalty income. Because the rules are technical, businesses should work from their Delaware apportionment data.
Startups and newer filers: Delaware’s fixed base percentage is the ratio of Delaware QREs to gross receipts for the 4 preceding years. If you have fewer than 4 years with both Delaware QREs and gross receipts, the ratio is computed using only the years you have, and if you have no such years, the fixed base percentage is treated as zero.
If you have no prior years with both Delaware QREs and gross receipts, the fixed base percentage is treated as zero, which effectively makes the Delaware base amount equal to 50% of current-year Delaware QREs.

Important: Once approved, transfer the credit amount from Form 2070AC to Form 700 and attach both to your Delaware income tax return.

Estimate Your Credits

Delaware-Specific Rules

Delaware's R&D credit features unique provisions for refunds, small businesses, and application processes that distinguish it from federal rules and enhance cash flow for innovators.

Fully Refundable Credits

Unused credits exceeding tax liability are paid out as a direct cash refund by the Delaware Division of Revenue, providing immediate liquidity for non-profitable or low-liability entities. Full refundability eliminates the need for carryforward, making the program highly attractive for startups.

Small Business Double Rate

Businesses that meet Delaware’s small business test (generally, average annual gross receipts under 20 million dollars, determined under federal R&D credit rules and adjusted periodically for inflation) qualify for a 20% rate on excess QREs (vs. 10% standard) under the regular method, or 100% of the apportioned federal ASC (vs. 50% standard). This provision drives high utilization in Delaware's biotech and fintech sectors.

Annual Election and Application

Taxpayers must elect the method (regular or ASC) and apply via Form 2070AC by September 15; approval is required before claiming on Form 700. The election is binding for the year but can change annually and is independent of the federal election.

Other Important Rules

Pass-Through Treatment: For S corps, partnerships, and LLCs, credits pass through pro-rata to owners via Schedule K-1, and refunds flow through to owners who file Delaware returns.
Audit and Documentation:Retain records for the applicable statute of limitations period (generally 3 years for corporate income tax), including project descriptions, payroll logs, and contracts. Audits focus on Delaware apportionment and IRC § 41 compliance; penalties apply for unsubstantiated claims.
No Federal Offset Limit:Delaware credits can be stacked with federal credits without restriction, enabling effective combined rates often in the 20 to 30 percent range (10% state + federal benefit, depending on base-year history, ASC election, and other factors).

Fully Refundable Credits

Small Business Double Rate

Annual Election and Application

Other Important Rules

Pass-Through Treatment: For S corps, partnerships, and LLCs, credits pass through pro-rata to owners via Schedule K-1, and refunds flow through to owners who file Delaware returns.
Audit and Documentation:Retain records for the applicable statute of limitations period (generally 3 years for corporate income tax), including project descriptions, payroll logs, and contracts. Audits focus on Delaware apportionment and IRC § 41 compliance; penalties apply for unsubstantiated claims.
No Federal Offset Limit:Delaware credits can be stacked with federal credits without restriction, enabling effective combined rates often in the 20 to 30 percent range (10% state + federal benefit, depending on base-year history, ASC election, and other factors).

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Delaware R&D Tax Credits Case Study

A Delaware-based fintech startup recovered significant refunds through targeted R&D claims.

$140,000

total state R&D tax credits earned (20% small biz rate)

60%

of wages qualified for credits

$350,000

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

Frequent Asked Questions

What is the Delaware R&D tax credit?

The Delaware R&D Tax Credit provides a fully refundable incentive equal to 10% of excess qualified research expenses over the base amount (20% for businesses with < $20M gross receipts) or 50% of the apportioned federal ASC (100% for small businesses), administered under Del. Code Ann. tit. 30, § 2070.

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

Eligible activities mirror federal IRC § 41: technological in nature, aimed at developing or improving products/processes, eliminating uncertainty, and involving experimentation—all performed in Delaware. Strike Tax identifies qualifying projects like software prototyping or process improvements.

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

Savings depend on actual eligible QREs, base-amount history, federal election, and qualified tax liability. For example, for $1M in excess QREs, a standard business may save $100,000 (10%), while small businesses may save $200,000 (20%). Stack with federal credits for potentially up to $300,000 total. Use Strike Tax’s R&D Credit Calculator for personalized estimates.

Are Delaware R&D tax credits refundable?

Yes, fully refundable—unused portions exceeding tax liability are paid as cash by the Delaware Division of Revenue.

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

Submit Delaware’s R&D credit application and computation schedule (currently Form 2070AC or successor form) by September 15 for approval, then transfer to Form 700 with your income tax return. Strike Tax handles documentation, apportionment, and filing to ensure compliance.

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

Yes, the state credit is calculated independently and can be stacked with federal credits for the same Delaware QREs, maximizing savings depending on your specific circumstances. Strike Tax optimizes claims across both programs.

What is the small business rate for Delaware’s R&D credit?

Businesses that meet Delaware’s small business test (generally, average annual gross receipts under 20 million dollars, determined under federal R&D credit rules and adjusted periodically for inflation) qualify for 20% on excess QREs (vs. 10% standard) or 100% of the apportioned federal ASC (vs. 50% standard), significantly boosting incentives for startups and mid-sized firms in high-innovation sectors.

How is the base amount calculated for Delaware’s R&D credit?

Base = fixed-base percentage × average Delaware gross receipts over prior 4 years (min. 50% of current QREs). Delaware’s fixed base percentage is the ratio of Delaware QREs to gross receipts for the 4 preceding years. If fewer than 4 years with both, use available years; if none, fixed base percentage is zero. Gross receipts follow Delaware apportionment rules and are not limited to Delaware-delivered sales.

Does the Delaware R&D credit require federal credit eligibility?

No, the credit remains available even if the federal R&D credit is terminated, per § 2073, though it incorporates IRC § 41 definitions.

Why choose Strike Tax for Delaware R&D credits?

Strike Tax ensures full compliance with Delaware's apportionment rules, maximizes refunds via the small biz rate or ASC election, and streamlines applications for tech and manufacturing clients.

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