Can Companies Claim
R&D Tax Credits in Connecticut?
Connecticut offers a Research and Development (R&D) Tax Credit that allows C-corporations to claim both incremental and non-incremental credits for R&D expenses incurred within the state. Qualified research expenses for both credits include expenses deductible under IRC § 174 and basic research payments as defined under IRC § 41
Overview of the Credits
Incremental R&D Credit
Provides a credit equal to 20% of the increase in R&D expenses conducted in Connecticut.
The credit is limited to 70% of the corporation’s business tax liability.
Unused credits can be carried forward for up to 15 years; carryback is not allowed.
Expenses claimed for the incremental credit cannot be used for the non-incremental credit.
Exchange of Credit: Companies with gross income of $70 million or less and no tax liability may carry 100% of the credit forward or exchange it for a refund equal to 65% of its value, subject to limitations. Only credits earned and claimable in the current year are eligible for exchange.
Non-Incremental R&D Credit
Qualified small businesses (QSBs) may claim up to 6% of the current year’s R&D expenses, depending on gross receipts.
Non-QSBs have a tiered credit structure based on expense levels.
Partially refundable for companies with gross income of $70 million or less and no tax liability.
The credit is capped at 70% of corporate business tax liability.
For tax years starting January 1, 2021, unused credits can be carried forward for up to 15 years; credits from prior years may be carried forward indefinitely.
Connecticut R&D Tax Credit Case Study
A Stanford-based company designs and manufactures aerospace components. Each year, it claims R&D credits for engineering development projects, including a multi-year study.
FEDERAL | CONNECTICUT | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $1,300,000 | $135,333 | $1,300,000 | $72,000 |
2023 | $900,000 | $91,000 | $900,000 | $52,000 |
2022 | $650,000 | $63,000 | $650,000 | $36,000 |
2021 | $450,000 | $38,500 | $450,000 | $24,000 |
Total | $3,300,000 | $327,833 | $3,300,000 | $184,000 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $1,300,000 | $135,000 |
| 2023 | $900,000 | $91,000 |
| 2022 | $650,000 | $63,000 |
| 2021 | $450,000 | $38,000 |
| Total | $3,300,000 | $327,000 |
Connecticut R&D Tax Credit Summary
| Year | connecticut Credit |
|---|---|
| 2024 | $72,000 |
| 2023 | $52,000 |
| 2022 | $36,000 |
| 2021 | $24,000 |
| Total | $184,000 |
Criteria for Qualifying Research Activities
The four-part test below defines what counts as qualified research activities
Purpose of the Research
The activity should develop or improve a business component, such as a product, process, software, formula, technique, or invention, by enhancing functionality, performance, reliability, or quality.
Resolving Uncertainty
The work must address technical uncertainties, such as determining the optimal design, method, or approach to achieve the desired outcome. The results should not be known in advance.
Systematic Experimentation
Eligible research must follow a structured experimentation process, including trial and error, modeling, simulation, or testing alternatives to reach the intended improvement.
Technological Basis
The activity must rely on hard sciences such as engineering, physical or biological sciences, or computer science. Artistic, social science, or routine data collection work does not qualify.
Why the R&D Tax Credit Matters ?
Since 1981, the R&D Tax Credit has helped businesses save billions in federal and state taxes. The credit enables companies to hire more staff, expand R&D, invest in facilities, and drive innovation. Thousands of businesses across multiple industries take advantage of this benefit each year.