Massachusetts Research and Development Tax Credit Summary

The Massachusetts R&D Tax Credit closely parallels the federal research credit available under sec. 41 of the Internal Revenue Code as of August 12, 1991. Below are some of the differences between the federal and Massachusetts research credits:

  • The Massachusetts research credit is equal to the sum of:
    • 15% the incremental basic research payments; and
    • 10% of the incremental qualified research expenses.
  • If the taxpayer did not have qualified research expenses in any one of the three taxable years preceding the taxable year for which the credit is being determined, the amount of the credit is equal to 5% of the taxpayer’s qualified research expense for the taxable year.
  • The amount of credit is limited to:
    • 100% of the corporation’s first $25,000 of corporate excise tax liability; and
    • 75% of such liability over $25,000.
  • The credit cannot reduce the tax below the minimum tax of $456.
  • An S corporation may apply the research credit against its excise tax due under Chapter 63, but may not share any excess credit with its shareholders.
  • For unincorporated entities, such as partnerships and joint ventures, the credits that are paid or received by such entities shall be attributed to the owners of the entities and shall be taken into account in determining the credit for the taxable year during which the taxable year of the unincorporated flow-through entity ends.
  • Unused credits maybe carried over to future years as follows:
    • A corporation may carry over for an unlimited period of time any portion of the credit which is disallowed under the 75% limitation.
    • Any credits disallowed which are not given unlimited status, may be carried forward for 15 years.

Massachusetts R&D Tax Credit Case Study

A Massachusetts life sciences company with fewer than 100 employees had never before claimed the R&D Tax Credit. This project involved a multi-year study covering the tax years 2012 – 2014. The Company qualified for the federal R&D Tax Credit of $312,666 and an additional $81,250 in Massachusetts state R&D Tax Credit. Summary of credits:

FEDERAL MASSACHUSETTS
Year Total QREs Credit Total QREs Credit
2014 $1,400,000 $141,166 $1,400,000 $43,750
2013 1,000,000 98,000 1,000,000 25,500
2012 750,000 73,500 750,000 12,500
Total $3,150,000 $312,666 $3,150,000 $81,250

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