Are R&D Tax Credits Available in New Jersey?
Yes. The state of New Jersey provides the Research and Development (R&D) Tax Credit which leverages 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 (QREs) 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.
- Method Consistency: taxpayers must use the same method for calculating the New Jersey research credit as they do for federal purposes, choosing between the Regular Credit method or the Alternative Simplified Credit (ASC) method.
- Credit is not available to partnerships and other pass-thru entities.
- Any unused R&D Tax Credits can be carried forward for 7 years.
New Jersey R&D Tax Credit Case Study
A New Jersey engineering firm with fewer than 30 employees had never claimed the R&D Tax Credit before. This project involved a multi-year study.
The Company qualified for federal R&D Tax Credits of $211,166 and an additional credit of $100,000 in NJ state R&D Tax Credit.
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FEDERAL
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NEW JERSEY
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Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
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Year 3
|
$950,000
|
$101,500
|
$950,000
|
$47,500
|
||
|
Year 2
|
600,000
|
61,833
|
600,000
|
30,000
|
||
|
Year 1
|
450,000
|
47,833
|
450,000
|
22,500
|
||
| Total | $2,000,000 | $211,166 | $2,000,000 | $100,000 | ||
You can read more about this New Jersey tax credit case study here.