Maryland R&D Tax Credits

State and Federal Credits Available

10%

Rate on QREs exceeding base

Years Carryforward for unused credits

Refundable

For small businesses ($5M assets)

$12M

Cap Annual total ($3.5M small biz set-aside)

The Maryland Research and Development Tax Credit, administered by the Maryland Department of Commerce, incentivizes businesses to invest in qualified research activities conducted within the state, providing income tax offsets for eligible expenses exceeding a calculated base amount. Extended through June 30, 2027, the program supports innovation in sectors like biotechnology, manufacturing, and technology, with a total annual cap of $12 million ($3.5 million reserved for small businesses).

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10%

Rate on QREs exceeding base

Years Carryforward for unused credits

Refundable

For small businesses ($5M assets)

$12M

Cap Annual total ($3.5M small biz set-aside)

Key Highlights

10% credit on Maryland qualified research expenses (QREs) in excess of the base amount
Refundable for small businesses to the extent credits exceed tax liability
Maximum $250,000 per applicant; prorated if caps exceeded
Available to C corps, S corps, partnerships, LLCs, and sole proprietorships for in-state research only
Application required by November 15 for certification; claim on amended or future returns
Follows federal IRC §41 definitions for QREs and qualified research

Who Qualifies

Credits are available to businesses conducting qualified research in Maryland, aligned with federal standards under IRC §41. Eligibility focuses on the nature of activities and in-state expenses.

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 Maryland R&D Tax Credit

Maryland uses a single incremental method based on state-sourced data, requiring calculation of a base amount tied to prior years' ratios. Only Maryland QREs and gross receipts qualify.

Incremental Method

Determine total Maryland QREs for the current tax year.
Calculate average Maryland gross receipts (GR) for the 4 taxable years immediately preceding the credit year (or fewer if business existed less time).
Calculate average Maryland QREs for the 4 taxable years immediately preceding the credit year.
Compute fixed-base percentage: average prior QREs ÷ average prior GR (0% if first year with QREs).
Base amount = fixed-base percentage × average prior Maryland GR (adjusted for partial years: multiply by days in tax year / 365).
Excess QREs = current QREs - base amount.
Credit = 10% × excess QREs (capped at $250,000 per applicant post-certification).

Example Calculation

QREs (credit year) =$2,000,000

Average prior GR (prior 4 years) =$8,500,000

Average prior QREs (prior 4 years) =$600,000

Fixed-base % =$600,000 / $8,500,000 ≈ 7.06%

Base =7.06% × $8,500,000 ≈ $600,000

Excess = $2,000,000 - $600,000 =$1,400,000

Credit = 10% × $1,400,000 =$140,000

For startups (first year QREs): Base = $0, so credit =10% of full QREs. Controlled groups aggregate QREs/GR for base but allocate credits pro-rata.

Base Calculation for Maryland R&D Tax Credit

Identify Maryland-sourced qualified research expenses (QREs) and gross receipts for the 4 taxable years immediately preceding the credit year (or fewer if the business existed for less time).
Compute the fixed-base percentage = (sum of prior QREs over those years) ÷ (sum of prior gross receipts over those years).
Compute average annual gross receipts = (sum of prior gross receipts) ÷ number of prior years (typically 4).
Base amount = fixed-base percentage × average annual gross receipts.
For partial or short tax years, adjust the base amount by multiplying by (number of days in the tax year ÷ 365).
If no prior gross receipts or QREs, base = $0 (full current QREs qualify as excess).

Example Calculation

Prior Year -1 QREs = $900K; Year -2 = $700K; Year -3 = $500K; Year -4 = $300K → Sum QREs =$2.4M

Prior GR: Year -1 = $10M; Year -2 = $9M; Year -3 = $8M; Year -4 = $7M → Sum GR =$34M

Fixed-base % =$2.4M ÷ $34M ≈ 7.06%

Average annual GR = $34M ÷ 4 =$8.5M

→ Base =7.06% × $8.5M ≈ $600K

→ Base =$0 (full current QREs qualify as excess)

Gross Receipts for Base Calculation

Maryland gross receipts are gross receipts reasonably attributable to business activity in Maryland, determined under Maryland apportionment rules (COMAR 03.04.03.08 and Tax General §10-402)
Use the same sourcing logic applied for Maryland corporate income tax sales factor purposes
Typically includes sales of tangible/intangible property, services, and other business income sourced to Maryland; consult state guidance for specifics

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Maryland-Specific Rules

Maryland's program emphasizes certification and caps to manage resources, with tailored benefits for small businesses and high-tech sectors.

Small Business Refund

Eligible small businesses (net book value assets $5M at start/end of year) receive full refund of credits exceeding tax liability. "Net book value assets" = total assets (including intangibles) minus depreciation/amortization, excluding liabilities. The program is heavily used and routinely oversubscribed, particularly by technology and life science companies, with the full $12M statewide cap typically allocated each year.

Annual Cap and Proration

$12M total cap ($8.5M non-small, $3.5M small biz). If exceeded, prorated pro-rata among applicants based on total applications received by the deadline, with reallocation of unused amounts between buckets. No per-firm cap beyond $250K max award. Apply well before the November 15 deadline to avoid operational issues.

Application and Certification

Mandatory application by November 15 following tax year; small biz submit balance sheet proof. Certification letter issued by February 15. Attach to amended return or claim over 7 years. Irrevocable proration; mergers include prior QREs in base.

Other Rules

Startup Base: 0% fixed-base in first QRE year, enabling 10% on full expenses
Pass-Through Entities: Aggregate for controlled groups; allocate via K-1 based on entity QREs
Audit Guidelines: Retain 4 years of records (project docs, payroll, invoices); aligns with federal §41 substantiation
Acquisitions: Credits carry over only in stock purchases; asset sales leave credits with seller; include acquired entities’ historic QREs in base

Small Business Refund

Annual Cap and Proration

Application and Certification

Other Rules

Startup Base: 0% fixed-base in first QRE year, enabling 10% on full expenses
Pass-Through Entities: Aggregate for controlled groups; allocate via K-1 based on entity QREs
Audit Guidelines: Retain 4 years of records (project docs, payroll, invoices); aligns with federal §41 substantiation
Acquisitions: Credits carry over only in stock purchases; asset sales leave credits with seller; include acquired entities’ historic QREs in base

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Maryland R&D Tax Credits Case Study

A Maryland-based biotechnology firm unlocked significant savings through targeted R&D claims.

$180,000

total state R&D tax credits earned

60%

of wages qualified for credits

$450,000

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

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Frequent Asked Questions

What is the Maryland R&D tax credit?

The Maryland Research and Development Tax Credit provides a 10% credit on qualified research expenses exceeding the state base amount, certified by the Department of Commerce, with a $12M annual cap and refundability for small businesses.

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

Activities must meet federal IRC §41 criteria—technological uncertainty, experimentation, and improvement in products/processes—conducted in Maryland. Examples include software development or prototype testing. Strike Tax verifies eligibility.

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

For $2M in excess QREs, you could save $200,000, plus federal credits. Small businesses may get full refunds. Use Strike Tax’s R&D Credit Calculator for personalized estimates.

Are Maryland R&D tax credits refundable for small businesses?

Yes, credits certified after 2012 are fully refundable for small businesses (<$5M net book assets) exceeding tax liability. Non-small businesses carry forward 7 years. Strike Tax maximizes cash flow.

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

Submit an online application to the Maryland Department of Commerce by November 15 post-tax year, including QRE/GR data. Receive certification by February 15, then claim on returns. Strike Tax handles documentation.

Can Maryland businesses claim both state and federal credits?

Yes, stack state and federal for the same in-state QREs to amplify savings. Maryland follows IRC §41, so documentation aligns. Strike Tax optimizes dual claims.

What is the Maryland base amount calculation?

Base = (avg prior QREs over 4 preceding years / avg prior GR over same period) × avg prior GR. First-year base is $0; partial years adjusted by days/365. Strike Tax computes accurately.

How does the $12M cap affect my application?

Credits prorated if total applications exceed caps ($8.5M non-small, $3.5M small). Max $250K per firm. Proration based on total by deadline; Strike Tax advises timing.

What documentation is needed for Maryland R&D claims?

Project descriptions, employee time logs, expense invoices, and GR reports for base. Retain 4 years for audits. For federal claims, especially refunds, IRS expects business component detail; Form 6765 Section G is optional in 2025 but mandatory for many in 2026. Strike Tax ensures compliance.

Why is Maryland’s R&D credit valuable for biotech firms?

High QREs in experimentation qualify easily, with refunds for startups and 7-year carryforward for growth. The program routinely allocates the full cap, heavily utilized by life sciences. Strike Tax tailors for MD tech/biotech.

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Next Steps

Estimate Credits

Use our calculator to estimate your potential federal and state benefits.

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Speak to Expert

Schedule a consultation to structure your R&D activities for maximum credits.

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Official Resources

Maryland Department of Commerce — R&D Credit Overview

Eligibility, calculation methods, and filing guidance.

Application Portal

Online system for November 15 submissions.

Tax-General Article §10-740 et seq

Statutory framework for the Maryland R&D credit.