Are R&D Tax Credits
Available in Massachusetts?
Yes. Massachusetts offers an R&D Tax Credit that parallels the federal credit under IRC Sec. 41 (as of August 12, 1991), with some key differences.
Massachusetts R&D Tax Credit Overview
If a taxpayer had no QREs in any of the prior three years, the credit is 5% of current-year QREs.
Applies to C-corps and S-corps (S-corps cannot pass unused credits to shareholders).
Flow-through entities (e.g., partnerships) must pass credits through to owners.
Life sciences companies may claim refunds of up to 90% of unused prior-year credits.
Credit amount is the lesser
15% of incremental basic research payments exceeding a base amount.
10% of incremental qualified research expenses (QREs) exceeding a base amount.
Limitations
Can offset 100% of the first $25,000 of corporate excise tax liability.
Up to 75% of liability above $25,000.
Cannot reduce liability below the $456 minimum tax.
Carryforward rules
Credits disallowed under the 75% limitation may be carried forward indefinitely.
Other disallowed credits may be carried forward up to 15 years.
Massachusetts R&D Tax Credit Case Study
A Massachusetts life sciences company with fewer than 100 employees claimed the credit for the first time in a multi-year study.
FEDERAL | MASSACHUSETTS | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $1,400,000 | $141,166 | $1,400,000 | $43,750 |
2023 | $1,000,000 | $98,000 | $1,000,000 | $25,500 |
2022 | $750,000 | $73,500 | $750,000 | $12,500 |
Total | $3,150,000 | $312,666 | $3,150,000 | $81,750 |
Federal R&D Tax Credit Summary
Year | Total QREs | Credit |
2024 | $1,400,000 | $141,166 |
2023 | $1,000,000 | $98,000 |
2022 | $750,000 | $73,500 |
Total | $3,150,000 | $312,666 |
Massachusetts R&D Tax Credit Summary
Year | Massachusetts Credit |
2024 | $43,750 |
2023 | $25,500 |
2022 | $12,500 |
Total | $81,750 |
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.