The Research Tax Credit

The Research Tax Credit is a general business tax credit for companies that incur qualifying expenses. The tax credit, which was originally introduced by Congress in 1981, is intended to provide tax relief to companies that develop new or improved products and processes. In addition to the federal tax credit, about 40 states have their own R&D tax credit initiative.

Who Qualifies?

Eligible industries include:

Aerospace Construction Engineering Services Packaging
Agriculture Cosmetics and Skincare Food Manufacturing Plastics & Rubber
Automotive Digital Imaging Industrial Machinery Precast Concrete
Biotechnology Distribution & Logistics Injection Molding Printing
Chemical Engineering Electronics Medical Devices Robotics
Clothing & Apparel Energy and Gas Metal Fabrication Software

and many more.

How much is the credit?

Federal and state credits can amount to as much as 20% of the costs incurred developing new or improved products and manufacturing processes.

To qualify for the Research Tax Credit, a business must:

  • Developed products or processes using specific know-how that is treated as a trade secret or is patentable, or
  • Developed a new or improved product that advanced the state of the art and required one or more design iterations or experimental trials to achieve, or
  • Developed or incorporated a new technology in order to catch up to a competitor, or
  • Attempted to develop a product or process improvement that was eventually abandoned, and
  • Incurred costs in any of the following:
  • Development of new products
  • Software development
  • Prototype fabrication
  • Production tooling
  • Materials consumed during testing
  • Sample parts to refine a process
  • Consultants or subcontractors
  • Testing labs