About this programme
Most U.S. states run their own research and development (R&D) tax credit alongside the federal Research Credit under Internal Revenue Code Section 41. There is no single multi-state portal or filing: each state's own tax authority (its department of revenue or equivalent) sets its own rate, cap, refundability and carryforward rules, and a company operating in several states typically has to evaluate and claim each state's credit separately.
The federal Research Credit is the reference point most state credits build from. It is claimed on Form 6765, Credit for Increasing Research Activities, and can be computed either as 20% of qualified research expenses (QREs) above a base amount, or at 14% under the Alternative Simplified Credit method. Many states define "qualified research" by reference to, or as a variant of, the federal IRC Section 41 definition, which is why the federal form and its underlying test are the starting point even when the actual credit being claimed is a state one.
A qualified small business can also elect to apply part of the federal research credit against payroll taxes instead of income tax, which matters for pre-revenue or early-stage companies that owe little or no federal income tax. This election is made on Form 6765 and the resulting credit is then claimed on Form 8974, attached to the employer's quarterly Form 941. Since 2023 (following the Inflation Reduction Act), the maximum payroll tax offset is $500,000 per year, applied first against the employer share of Social Security tax and then against Medicare tax, with any unused amount carried to the next quarter.
Because this is a 50-state landscape rather than a single program, this page is a starting point, not a complete state-by-state guide. Confirm current rate, cap, refundability and filing mechanics with the specific state's own tax authority before relying on any figure.
How it works
Qualified research expenses generally include wages for employees performing or directly supervising/supporting qualified research, supplies used in the research, and a portion of contract research costs — the same categories the federal credit uses, which most states also reference.
The federal credit offsets income tax liability (via Form 3800, the General Business Credit) or, for an electing qualified small business, payroll tax liability (via Form 8974 against Form 941). State credits typically offset state income/franchise tax; whether a state credit is refundable or transferable if it exceeds liability depends entirely on that state's own rules.
Recent federal law has changed how research expenditures are treated for depreciation/amortization purposes under Section 174, separate from the Section 41 credit itself — the IRS has issued interim guidance (Notice 2023-63, Notice 2024-12) and an accounting-method change procedure (Rev. Proc. 2025-08) addressing this. That amortization treatment is distinct from, but interacts with, the credit computation.
Who can apply
Any business incurring qualified research expenses in the U.S. can generally evaluate the federal Section 41 credit; eligibility for a given state's credit depends on that state's own statute (typically requiring the research to be conducted within the state, or the taxpayer to have state tax liability there).
The payroll tax offset election is available only to a "qualified small business" as defined in IRC Section 41(h), and the election must be made on a timely-filed original income tax return — it cannot be made or changed on an amended return.
How to apply
- Determine and document qualified research expenses (wages, supplies, contract research) for the tax year, following the federal Section 41 test as the common starting definition.
- Complete Form 6765 to compute the federal Research Credit, elect the reduced credit under Section 280C if applicable, and elect the qualified small business payroll tax credit if applicable.
- If electing the payroll tax offset: attach the election to the timely-filed federal income tax return, then claim the credit on Form 8974 attached to the applicable quarterly Form 941 once the income tax return is filed.
- Separately identify which states the business has nexus/liability in, and consult each relevant state tax authority's own R&D credit forms and instructions — these are filed with that state's income/franchise tax return, not with the federal Form 6765.
Documents you’ll typically need
- Form 6765, "Credit for Increasing Research Activities" (federal)
- Form 8974, "Qualified Small Business Payroll Tax Credit for Increasing Research Activities" (for the payroll tax election)
- Form 3800, "General Business Credit" (to apply the federal credit against income tax)
- Records substantiating qualified research expenses: wage records for qualifying employees, supply costs, and contract research agreements/invoices
Frequently asked
Is there one national R&D tax credit that covers all states?
No. The federal Research Credit under IRC Section 41 is a single national program claimed on Form 6765. Separately, most states run their own R&D credit with its own rate and rules, administered by that state's own tax authority — there is no combined multi-state filing.
Can a company claim both the federal credit and a state credit for the same research?
Often yes, since the two are separate programs against separate tax liabilities (federal vs. state), but the exact interaction — including whether a state requires an addback or adjustment — is set by each state's own statute and should be confirmed with that state's tax authority.
What is the payroll tax offset, and who can use it?
A qualified small business can elect to apply part of its federal research credit against payroll taxes instead of income tax, which is useful for a company with little or no income tax liability. The election is made on Form 6765 with a timely-filed return, and the credit is then claimed on Form 8974 against quarterly Form 941 payroll tax.
How much can the payroll tax offset be worth?
For tax years after December 31, 2022, the maximum is $500,000 per year (increased from $250,000 by the Inflation Reduction Act), applied first against the employer's Social Security tax and then against Medicare tax, with any unused amount carried to the next quarter.
Does the recent Section 174 change affect the R&D credit itself?
Section 174 governs how research and experimental expenditures are deducted or amortized for tax purposes, which is a separate question from the Section 41 credit computation. The IRS has issued interim guidance (Notice 2023-63, Notice 2024-12) and a related accounting-method change procedure (Rev. Proc. 2025-08) on the amortization side; the credit itself is still computed and claimed on Form 6765.
Where do I find the rules for a specific state's R&D credit?
Each state publishes its own R&D/research credit guidance through its own department of revenue or equivalent tax authority. Because rate, cap, refundability and carryforward differ by state and change over time, confirm current terms directly with that state's tax authority rather than relying on a multi-state summary.
Reviewed 2026-08-16. Programmes change — confirm current eligibility, amounts and deadlines on the official page before you apply. CapEasy is a private consultancy and is not affiliated with any government authority.