New Jersey R&D Tax Credit

Businesses today invest heavily in research and development to remain competitive in an increasingly digital global economy. However, many companies don’t have the resources or cash flow to fund these programs from their own operating capital. As a result, they are at a disadvantage when meeting international standards for innovation and growth.

Fortunately, state lawmakers understand that without funding assistance, such businesses may not be able to invest in new R&D programs. For this reason, legislators have created tax credits for R&D programs across the US. New Jersey R&D tax credit is an incentive for businesses in the area to continue growing and expanding at home instead of moving overseas or shutting down completely.

New Jersey Research and Development Tax Credit Explained

New Jersey research tax credit has undergone significant modifications that affect tax years starting from 2018. In general, it equals ten percent of the extra QREs above the basic amount. The state follows the federal description of QREs (you can check it in IRC Section 41. (b)).

You can also utilize the alternative simplified method to calculate incentives for taxable years that end on or following July 31, 2019. But that method only applies to consolidated groups, so you must be a part of a combined group that is included on an NJ combined return.

In contrast to its federal counterpart, the New Jersey research tax credit is solely available to C-corporations and some qualified S-corporations. Moreover, stockholders cannot receive any credits.

Unused credits typically have a 7-year carryforward window. However, credits closely connected to specific industries have a 15-year carryover duration. They include medical device technology, environmental technology, electronic device technology, biotechnology, advanced materials, and advanced computing industries.

How to Calculate New Jersey R&D Tax Credit

Take ten percent of the surplus of QREs for the taxable year above the base amount, then add ten percent of basic research costs for the taxable period. Moreover, New Jersey started allowing the ASC method to compute credits on January 1, 2018, but there won’t be Code 280C compliance.

Claiming the Federal Payroll Tax Credit

The permissible payroll credit under IRC Sections 3111(f) and 41(h)(1) and the corporate income tax credits under IRC Section 41(a) are different incentives. The federal corporate income tax credit is the foundation for the NJ Corporation Business Tax R&D Tax Credit. For this reason, the NJ research tax credit doesn’t cover such costs, and you shouldn’t use them to calculate the final amount.

New Jersey Research and Development Tax Credit: Takeaway

If you own an S-Corp in New Jersey, you are eligible for a credit relating to expanding your research operations to the extent of your NJ corporation tax burden. But you can’t pass it on to the shareholders.

FAQs

What kind of companies can apply for an R&D tax credit in New Jersey?

C-Corporations

What is the deadline for applying for an R&D tax credit in New Jersey?

You must submit your application together with the New Jersey Tax Return.

What data do I need to calculate credit an R&D tax credit in New Jersey?

Gross receipts for the past four years, New Jersey QREs for the past three years, as well as claim period New Jersey QREs (Qualified R&D Expenses).

What information do I need to provide to file an R&D tax credit in New Jersey?

Federal Form 6765

Is credit carryforward an option in New Jersey?

Yes, up to seven years or fifteen years for certain industries.