Are R&D Tax Credits
Available in New Jersey?
Yes. New Jersey offers a Research and Development (R&D) Tax Credit that follows federal IRC §41 rules with some state-specific modifications.
Credit Highlights
Credit Rate
10% of QREs exceeding the base amount, plus 10% of basic research payments.
Eligibility
Only available to corporations (C and S corporations).S corporations: Credit limited to the corporation’s NJ tax liability; cannot pass through to shareholders.
Method Consistency
Taxpayers must use the same method as federal for calculating the credit (Regular Credit or Alternative Simplified Credit).
Pass-Through Entities
Not eligible
Carryforward
Unused credits can be carried forward for 7 years.
New Jersey R&DTax Credit Case Study
A small New Jersey engineering firm with fewer than 30 employees claimed the R&D Tax Credit for the first time during a multi-year project.
Federal R&D Credit: $211,166
New Jersey State R&D Credit: $100,000
FEDERAL | NEW JERSEY | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $950,000 | $101,500 | $950,000 | $47,500 |
2023 | $600,000 | $61,833 | $600,000 | $30,000 |
2022 | $450,000 | $47,833 | $450,000 | $22,500 |
Total | $2,000,000 | $211,166 | $2,000,000 | $100,000 |
Federal R&D Tax Credit Summary
Year | Total QREs | Credit |
2024 | $950,000 | $101,500 |
2023 | $600,000 | $61,833 |
2022 | $450,000 | $47,833 |
Total | $2,000,000 | $211,166 |
New Jersey R&D Tax Credit Summary
Year | New Jersey Credit |
2024 | $47,500 |
2023 | $30,000 |
2022 | $22,500 |
Total | $100,000 |
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.