Pennsylvania R&D Tax Credits

The Pennsylvania R&D tax credit is equal to 10% of the amount by which the taxpayer's qualifying research and development expenses exceed the taxpayer's Pennsylvania base amount. After calculating the credit using PA Form REV-545, the application is submitted electronically using a new online portal, MyPATH.

The online R&D application is available from July 12, 2023 - December 1, 2023, and all applications will need to be filed through myPATH before the filing deadline of December 1, 2023 After the deadline, applicants will no longer be able to file or make changes to their 2022 application. The PA Department of Revenue will notify applicants if there is a problem with the application. Users are also advised to periodically check the status of the application online for notifications and action items requiring further information.
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In order to submit an application for research and development (R&D) tax credits, your business must meet the following criteria:

1. Must be an entity subject to Personal Income Tax (Article III) or Corporate Net Income Tax (Article IV).
2. Must have research expenses incurred for R&D activities conducted within Pennsylvania.
3. Must be in state tax compliance with the laws and regulations of the Commonwealth, as determined by the Pennsylvania Department of Revenue.
4. Must have at least two years of R&D expenditures.

A completed, as-filed, current year Federal Form 6765 must be submitted through the online application system in order for an applicant to be eligible for the Pennsylvania Research and Development Tax Credit.

Pennsylvania also allows taxpayers to sell or assign their R&D tax credits to a buyer.
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Learn more about Pennsylvania R&D Tax Credit law from the Pennsylvania Department of Revenue and the online application process through a video guide.
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R&D Tax Credit Available:

Yes

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Eligible Entities:

C-Corporations, S-Corporations, LLCs, Partnerships

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Deadline for Tax Filing:

Application due by 12/01

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Data Required to Compute Credit:

Claim Period Qualified Research Expenses (QREs)

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What Information is needed?

QREs for Prior 4 Tax Years

Federal Form 6765

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Credit Carryforward:

15 years

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The R&D tax credit equals:

• The Pennsylvania research credit equals 10% (large businesses) or 20% (small businesses) of Pennsylvania QREs less the greater of A) 50% of expenses or B) average of prior 4 years of QREs (i.e. a 4-year ASC equivalent).

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Specific State Tax Items to Note:

• Large Businesses: Total Assets > $5M
• Small Businesses: Total Assets < $5M
  
• If filing as a small business, must provide a copy of the balance sheet showing total assets less than $5 million at the beginning or end of the year.
• The PA R&D credit cannot be carried back.
• Unique to Pennsylvania, taxpayers can sell or assign R&D credits to a buyer.