Changes in Connecticut’s Tax Laws Gives Businesses More Opportunities To Leverage R&D Tax Credits

Hartford, Connecticut, USA downtown skyline on the river at dusk.

Recent changes to Connecticut’s tax laws have been set in place after Governor Lamont signed the state’s budget legislation into law on June 23, 2021. One of the most important tax changes centers around the state’s research and development tax credits.

 

These tax credits are given to businesses by the state for performing research and development to help develop products or processes that can advance their industry or the general US population.

What Changes Have Been Made To Connecticut’s R&D Tax Credits?

 

Two essential changes have been made to the current research and development laws in Connecticut. One of these changes applies to what companies can claim in annual tax liability. In the past, businesses could claim 50.1%, this will increase over the next two years to 60% in 2022 and 70% in 2023 and will apply to tax years thereafter, a full 20% boost in savings.

 

Another change was made to stipulations regarding unused tax credits. The law used to state that these credits had an unlimited carryover. Now these credits can only carry over for 15 years starting with credits that have been issued in the 2021 tax year and thereafter.

 

How Is The State R&D Tax Currently Calculated?

 

The state of Connecticut has two types of credits, incremental R&D credits and non-incremental R&D credits. These credits can be calculated in the following ways:

Incremental R&D Credit

  • Credits given are equal to 20% of the increase in R&D expenses
  • Unused credits can be carried over up to 15 years
  • Credits are partially refundable to businesses who have no tax liability or whose gross income isn’t more than $70 million

Non-incremental R&D Credit

  • Credits given are equal to 6% of the increase in R&D expenses
  • Credits given are equal to 5% of the increase in R&D expenses for companies who have between 251 to 800 employees
  •  Unused credits can be carried over up to 15 years

How Can Your Company Claim These Credits?

 

Claiming R&D tax credits is a detail-orientated process that often requires a good amount of documentation and expertise. This is why hiring a team of trusted tax professionals to help your company navigate this process can ensure that your business is correctly claiming them.

 

At National Tax Group, we will walk you through your company’s activities so you can get the most from your state’s R&D tax credits. Call our team at (561) 257-3436 to set up your free consultation to find out if you can qualify.

 

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