Massachusetts R&D Tax Credit Summary

 

The Massachusetts R&D Tax Credit closely parallels the federal research credit available under Sec. 41 of the Internal Revenue Code as of August 12, 1991. Effective January 1, 2015, a corporation may elect to calculate its research and development credit using one of two methods. The first method is similar to the last except uses different definitions for “base amount” and “fixed base rate” that affect the calculation of the credit. Corporations may choose to claim an alternative simplified credit calculated over a period of three years phased in over six years.

Below are some of the differences between the federal and Massachusetts research credits:

  • The Massachusetts research credit is equal to the sum of:

    • 15% of the basic research payments determined under IRC § 41(e)(1)(a); and

    • 10% of the excess, if any, of the incremental qualified research expenses for the taxable year over the base amount.

  • If the taxpayer did not have qualified research expenses in any one of the three taxable years preceding the taxable year for which the credit is being determined, the amount of the credit is equal to

    • For years beginning on or after January 1, 2015 and before January 1, 2018​, a 5% credit rate of the taxpayer's qualified research expense; or

    • For calendar years 2018, 2019 and 2020, the amount of the alternative credit rate will be reduced to 7.5% 

  • The amount of credit is limited to:

    • 100% of the corporation's first $25,000 of corporate excise tax liability; and

    • 75% of such liability over $25,000.

  • The credit cannot reduce the tax below the minimum tax of $456.

  • An S corporation may apply for the research credit against its excise tax due under Chapter 63, but may not share any excess credit with its shareholders. 

    • The credit does not flow through to the individual shareholders of an S corporation.

  • For unincorporated entities, such as partnerships and joint ventures, the credits that are paid or received by such entities shall be attributed to the owners of the entities and shall be taken into account in determining the credit for the taxable year during which the taxable year of the unincorporated flow-through entity ends.

Eligible Entities: C-Corporations & S-Corporations

Deadline for Tax Filing: Due with Massachusetts Tax Return

Data Required to Compute Credit:

  • Claim Period Qualified Research Expenses (QREs)

  • QREs for Prior 4 Tax Years

  • Gross Receipts for Prior 4 Tax Years

Credit Carryforward: 15 Years

  • Unused credits may be carried over to future years as follows:

    • A corporation may carry over for an unlimited period of time any portion of the credit which is disallowed under the 75% limitation.

    • Any credits disallowed which are not given unlimited status, may be carried forward for 15 years.

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Refundable/Transferable Tax Credit: No

Important Links and Forms:

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