Virginia R&D Tax Credits

Virginia allows a Research and Development Expenses Tax Credit (RDC) against corporate income tax for qualified expenses equal to 15% of the first $300,000 paid or incurred by the taxpayer during the taxable year, or 20% of the first $300,000, if the qualified expenses were in conjunction with a Virginia public or private college or university, to the extent the expenses exceed the Virginia base amount for the taxpayer. This credit is limited to a yearly maximum of $45,000 (or $60,000), but the excess is refundable. Use Virginia Form RDC to claim this credit.

If the taxpayer has more than $5,000,000 in QREs in a year, the state of Virginia provides the Major Research and Development Expenses Tax Credit (MRD). This credit equals 10% of the excess QREs over the base amount, has no limit, and is not refundable. It may only offset up to 75% of the tax liability in the tax year, but can be carried forward for 10 years. Use Virginia Form MRD to claim this credit.

Virginia Department of Revenue requires additional supporting details and schedules (compared to the federal R&D credit) with the application, so it's important to work with experts in the industry.

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Learn more about the Virginia R&D Credit from the Virginia Tax website.

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R&D Tax Credit Available:

Yes - set to expire on December 31, 2024

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Eligible Entities:

C-Corporations, S-Corporations, LLCs, Partnerships

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Deadline for Tax Filing:

Must be mailed. Application due no later than September 1st. (i.e. postmarked by 9/1)

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Data Required to Compute Credit:

Claim Period VA Qualified R&D Expenses (QREs)

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What Information is needed?

Virginia QREs for Prior 3 Years

Gross Receipts for Prior 4 Years

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Credit Carryforward:

None for RDC / 10 Years for MRD

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The R&D tax credit equals:

Primary Virginia R&D Credit Method (Form RDC)

• Regular Credit is equal to either 15% of the first $300,000 in Virginia QREs, or 20% of the first $300,000 of Virginia QREs if the research was conducted in conjunction with a Virginia college or university, to the extent these expenses exceed the base amount.
• Alternative Simplified Method is equal to 10% of the difference between current year Virginia QREs and 50% of the average Virginia QREs incurred for the three preceding taxable years. If there are no QREs in any of the prior 3 years, the credit is 5% of the current year qualified expenditures.

Major Research and Development Expenses Tax Credit (Form MRD)

• Available for companies with VA QREs in excess of $5 million for the claim tax year.  The credit equals 10% of a taxpayers current year Virginia QREs over the base amount (50% of the average for prior 3 tax years).

For both calculations, since the award letter is not provided until late November, taxpayers will need to either submit an extension payment for any tax due or file an amended return once you have received the credit certification.

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Specific Items to Note:

The total amount of credits granted by Form RDC cannot exceed $7 million for tax year 2020 (the yearly cap increases to $7.7 million in 2021).  This application is due September 1st, and the taxpayer will receive a certification letter by November 30th.  The credit is claimed using Schedule CR (individuals) or Form 500CR (corporations).

• The credit amount calculated on Form RDC cannot exceed $45,000 per year (or $60,000 if the Virginia qualified research was conducted in conjunction with a Virginia public or private university).
• Pass-through entities have to file Form PTE within 30 days of receiving the award letter to allocate credits among shareholders.

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The total amount of credits granted by Form MRD cannot exceed $20 million for tax year 2020 (the yearly cap increases to $24 million in 2021). This application is also due September 1st, and the taxpayer will receive a certification letter by November 30th.  The credit is claimed using Schedule CR (individuals) or Form 500CR (corporations).

• The total amount of credit calculated on Form MRD can’t be greater than 75% of your tax liability. Carryforward any unused credits for 10 years.
• Pass-through entities have to file Form PTE within 30 days of receiving the award letter to allocate credits among shareholders.