New Jersey Research and Development Tax Credit Summary
The state of New Jersey R&D Tax Credit leverages off of the federal section 41 rules regarding the calculation and qualification of qualified research activities with some modifications:
- An R&D tax credit against the entire net income component of the corporation business tax is allowed for qualifying research activities performed in New Jersey.
- The New Jersey R&D tax credit is equal to 10% of the excess of the qualified research expenses for the tax period over the base amount, plus 10% of basic research payments for the tax period, as determined under IRC Sec. 41.
- The R&D Tax Credit is only available to corporations (both C and S corporations). A New Jersey S corporation's credits are limited to its New Jersey corporation tax liability and pass-through of the credit to the individual shareholders is not permitted.
- Credit is not available to partnerships and other pass-thru entities.
- The credit is allowed based on qualified expenditures made in taxable years beginning after 1993.
- Any unused R&D tax credits can be carried forward for 7 years.
- A taxpayer that has been allowed a research and development credit for the fiscal or calendar accounting period (tax year) in which the qualified research expenses have been incurred, and basic research payments have been made, for research conducted in New Jersey in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, environmental technology, and medical device technology, are allowed to carry forward the tax credit for 15 years.
New Jersey R&D Tax Credit Case Study
A New Jersey engineering firm with fewer than 30 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 federal R&D Tax Credits of $211,166 and an additional credit of $100,000 in New Jersey state R&D Tax Credit.