Are R&D Tax Credits
Available in Virginia?
Yes. The state of Virginia provides Research and Development (R&D) Tax Credits that allow a refundable individual and corporate income tax credit for conducting qualified research and development in Virginia, to the extent a taxpayer’s Virginia qualified R&D expenses (QREs) exceed a base amount.
Key Features of Virginia R&D Credits:
The credit is allowed in the taxable year in which qualified R&D expenses are reported on the federal income tax return.
Virginia follows IRC Section 41 rules for qualified activities and expenses, with a modified version of the federal regular credit method.
Base Credit:
15% of the first $300,000 in Virginia QREs, or
20% if the research was conducted in conjunction with a Virginia public or private college or university, to the extent expenses exceed the taxpayer’s base amount.
Alternative Simplified Credit Method:
10% of the difference between QREs of the credit year and 50% of the average QREs from the three prior tax years.
If the taxpayer had no Virginia QREs in any one of the three preceding years, the credit is 5% of the current year’s expenses.
Total credits under this method may not exceed $45,000 ($60,000 if research was in conjunction with a Virginia college or university).
Additional Notes:
Beginning in 2023, if total eligible credit requests exceed the $15.77 million statewide cap, credits are granted pro-rata as determined by the Department.
Eligible taxpayers must submit an Application for the Research and Development Expenses Tax Credit (Form RDC), along with supporting documentation, to the Department by September 1 of the year following the credit year.
Virginia R&D Tax Credit Case Study
A firm in Norfolk, Virginia, designs components for the maritime industry. The company claims R&D credits each year for its engineers’ design and development activities. This project involved a multi-year study covering tax years 2021–2024.
The company qualified for federal R&D Tax Credits of $196,000 and an additional $98,235 in Virginia state R&D Tax Credits.
FEDERAL | VIRGINIA | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $750,000 | $70,000 | $750,000 | $35,100 |
2023 | $550,000 | $45,500 | $550,000 | $20,625 |
2022 | $500,000 | $42,000 | $500,000 | $21,000 |
2021 | $450,000 | $38,500 | $450,000 | $21,510 |
Total | $2,250,000 | $196,000 | $2,250,000 | $98,235 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $750,000 | $70,000 |
| 2023 | $550,000 | $45,500 |
| 2022 | $500,000 | $42,000 |
| 2021 | $450,000 | $38,500 |
| Total | $2,250,000 | $196,000 |
Virginia R&D Tax Credit Summary
| Year | Virginia Credit |
|---|---|
| 2024 | $35,100 |
| 2023 | $20,625 |
| 2022 | $21,000 |
| 2021 | $21,510 |
| Total | $98,235 |
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.