Can Companies Claim
R&D Tax Credits in Pennsylvania?
Yes. Pennsylvania offers an R&D Tax Credit similar to the federal credit, including the definition of qualifying research, with a few state-specific differences.
Key Features of the Pennsylvania R&D Credit
Total state credit is capped at $60 million, with $12 million reserved for qualified small businesses (QSBs).
Credit rate is 10% for most businesses and 20% for QSBs. QSBs are for-profit corporations, LLCs, partnerships, or proprietorships with assets under $5 million in the year research expenses are incurred.
Pennsylvania allows a modified Alternative Simplified Credit.
Only research conducted in Pennsylvania qualifies.
Unused credits can be carried forward for up to 15 years; the credit is nonrefundable.
There is no sunset provision for this credit
Certain industries, such as medical or veterinary lab testing, are not eligible.
Taxpayers must apply through the Pennsylvania Department of Revenue’s myPATH system for research expenses incurred in the previous taxable year. Applications open August 1 and close December 1.
Pennsylvania Tax Credit Case Study
A Pennsylvania-based company claims R&D credits annually for engineering development projects spanning 2021–2024.
The company qualified for $359,917 in federal R&D credits and $148,750 in Pennsylvania state credits.
FEDERAL | PENNSYLVANIA | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $1,300,000 | $135,333 | $1,300,000 | $65,000 |
2023 | $900,000 | $91,000 | $900,000 | $43,750 |
2022 | $650,000 | $63,000 | $650,000 | $27,500 |
2021 | $450,000 | $38,500 | $450,000 | $12,500 |
Total | $3,300,000 | $359,917 | $3,300,000 | $148,750 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $1,300,000 | $135,333 |
| 2023 | $900,000 | $91,000 |
| 2022 | $650,000 | $63,000 |
| 2021 | $450,000 | $38,500 |
| Total | $3,300,000 | $359,917 |
Pennsylvania R&D Tax Credit Summary
| Year | Pennsylvania Credit |
|---|---|
| 2024 | $65,000 |
| 2023 | $43,750 |
| 2022 | $27,500 |
| 2021 | $12,500 |
| Total | $148,700 |
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.