Maryland R&D Tax Credit

Maryland offers several incentives to encourage companies to expand their operations in the state. One such incentive is the Maryland R&D tax credit. The state created this program to promote economic growth through innovation and entrepreneurship. Discover if your Maryland business qualifies for such benefits.

Maryland Research Tax Credit Explained

If you conduct research and development operations in Maryland, you are eligible for one of the two R&D tax credits: the Basic credit or the Growth credit. To apply, you need to submit an online request before November 15 of the year following the taxable year in which you made the expenditures.

However, every year there’s a limit to the number of credits available. Credits awarded for all firms in the state cannot reach more than $12 million in total.

The following situations will result in the Maryland Commerce Department prorating the tax credits proportionally:

• If more than $5.5 million in Basic Credits have been requested overall;

• More than $6.5 million in growth credits have been requested overall.

By February 15 of the following year, applicants will get a Certification Letter that notes the approved sum. Application dates coincide with filing deadlines for taxes. For this reason, after getting the letter, you may file an updated tax return or claim the credit on any income tax return filed in the following seven tax years. However, you must include a copy of the approval letter with the company’s income tax return.

Maryland research and development tax credit will be effective until June 30, 2025. After that, the Maryland General Assembly will decide on the potential extension.

Refunds for Small Businesses

Both credits are refundable for qualified small businesses if an Maryland R&D credit is certified after December 15, 2012. A sole proprietorship, partnership, LLC, or for-profit corporation that provides proof of having assets with a net book value of less than $5 million at the start or end of the tax year (as reported on the balance sheet) is considered a “small business.”

How to Calculate the Maryland Research Tax Credit

Basic Tax Credit

The credit equals 3% of all qualifying R&D costs that don’t exceed the base amount. But the credit is prorated if the total amount of credits requested exceeds $5.5 million. You can calculate the base amount by dividing the total QREs by the total Maryland gross receipts for the preceding four years.

Growth Tax Credit

The credit equals 10% of all qualifying R&D costs that exceed the base amount. The Growth R&D tax credit for businesses is prorated if the total amount of credits requested exceeds $6.5 million.

Maryland Research and Development Tax Credit: Takeaway

The Maryland Department of Commerce uses the IRC § 41(b) definition for qualifying R&D activities and expenses. Businesses that qualify must apply for the Maryland R&D tax credit by November 15 to reimburse costs from the prior fiscal year.

FAQs

What kind of companies can apply for an R&D tax credit in Maryland?

Partnerships, LLCs, S-Corporations, C-Corporations

What is the deadline for applying for an R&D tax credit in Maryland?

You must submit an online application to The Maryland Department of Commerce by November 15.

What data do I need to calculate credit an R&D tax credit in Maryland?

Claim period QREs (Qualified R&D Expenses)

What information do I need to provide to file an R&D tax credit in Maryland?

Gross Receipts as well as QREs for the past four years.

Is credit carryforward an option in Maryland?

Yes, a refundable credit for small businesses — up to twenty years.