Pennsylvania R&D Tax Credit

The Research & Development Tax Credit program is a performance-based incentive supporting businesses that conduct research and development activities in Pennsylvania. If you meet the eligibility requirements listed below, you may be able to take advantage of the Pennsylvania R&D tax credit when you file your taxes this year.

Pennsylvania Research and Development Tax Credit

You must fulfill specific criteria to qualify for the Pennsylvania R&D credit. First, you have to be an organization that is liable to either Corporate Net Income Tax (Article IV) or Personal Income Tax (Article III). Furthermore, you must have a minimum of two years of research and development costs spent on research activities in Pennsylvania. Lastly, you must comply with all Commonwealth rules and regulations regarding state taxes, as determined by the Pennsylvania Department of Revenue.

The state has a limit of $55 million for the PA R&D credit. Moreover, it sets aside $11 million of the total sum for eligible small businesses.

The Process

This incentive is equivalent to 10% of the difference between your QREs and the Pennsylvania base amount. You can calculate the credit amount with the help of form PA REV-545a.

To apply, submit a completed current year PA R&D credit application Federal Form 6765 electronically via the online R&D application system by December 1, 2022. If there’s an issue with your request, the Department of Revenue will contact you. That said, it is also recommended to regularly check your application’s status online for alerts and action items requiring more details.

Furthermore, if you are applying as a small business, you need to provide a copy of the balance sheet that proves your total assets were less than $5 million at the beginning or end of the year. On the other hand, large businesses must prove their total assets were bigger than $5 million.

Please also note that you cannot carry the Pennsylvania R&D tax credit back. However, you can transfer or sell it to other qualifying taxpayers.

How to Calculate the Pennsylvania Research Tax Credit

The PA R&D tax credit equals:

• For large businesses, the credit is equivalent to 10% of the excess QREs over the Pennsylvania base amount;

• For small businesses, the credit is equivalent to 20% of the excess QREs over the Pennsylvania base amount.

Pennsylvania Research and Development Tax Credit: Takeaway

You can claim a research tax credit if you incur qualifying R&D expenditures in Pennsylvania. But unique to this state, you can sell any unused credit in the open market to improve and expand your operations.

FAQs

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

Partnerships, LLCs, S-Corporations, C-Corporations

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

You must submit your application by December 1, 2022.

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

Claim period QREs (Qualified R&D Expenses)

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

Federal Form 6765, as well as QREs for the past four years.

Is credit carryforward an option in Pennsylvania?

Yes, up to fifteen years.