Pennsylvania R&D Tax Credit

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The Pennsylvania R&D Credit provides businesses with a potentially significant tax benefit when research and development business activities are conducted within the state of Pennsylvania.

The Pennsylvania Research and Development Tax Credit, also known as the Pennsylvania R&D Credit provides businesses with a potentially significant tax benefit when research and development business activities are conducted within the state of Pennsylvania.


The research credit in Pennsylvania is different from the Federal R&D credit in several significant ways:

  • Equals 10% of the taxpayer’s qualifying research and development incremental expenses that exceed the base amount (the credit equals 20% for qualified small businesses)
  • Large businesses are defined as having more than $5 million in total assets, qualified small businesses are defined as having less than $5 million in total assets
  • A modified Alternative Simplified Credit is available
  • There is a state cap on the R&D credit in the amount of $55 million ($11 million for qualified small businesses)
  • Research must be conducted within the state of Pennsylvania
  • All applications must be submitted on the Research and Development (R&D) Tax Credit online application system by December 1.


You can read more about the Pennsylvania research tax credit here.

What is the Pennsylvania R&D Tax Credit?

R&D tax credits, also known as the Research and Development credit, enable businesses to potentially receive up to a 10% tax credit (20% for qualified small businesses) on qualified research expenditures that have been incurred within the state of Pennsylvania. Taxpayers might qualify for the credit if they paid for (or incurred) Qualified Research Expenses.

What are Qualified Research Activities in Pennsylvania?

Qualified Research Activities can include the below. All qualified activities must take place in the state of PA.

Creating improved products, processes, formulas, software, and techniques
Automating or improving internal manufacturing processes
Designing tools, jigs, fixtures, and molds
Integrating new equipment
Development of data centers, big data, and data mining tools
Integration of APIs and other technologies
Development of financial or pricing models
Manufacturing new or improved products
Developing prototypes, first articles, models
Evaluation of alternative materials
Development of firmware
Network hardware and software development and optimization
Developing simulators
Development of risk management systems
Hiring outside consultants to perform any of the listed activities

Eligibility:
PA R&D Tax Credit

Eligible businesses must be either C-Corporations, S-Corporations, LLCs, or Partnerships and conduct qualified research activities within Pennsylvania.

Find out if you qualify for the PA research credit.

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How the R&D Tax Credit Works in PA

What Information is Needed?

Properly claiming the R&D tax credit can be difficult without the right expertise - That’s where GOAT.tax comes in. Our R&D tax credit software identifies any qualified research expenses your company paid and qualified research activities to ensure you receive the largest refund possible.

These qualified expenses typically include employee compensation, contracted services, and materials. Typical forms needed for proof often include payroll records, detailed financial records, and vendor invoices.

Meeting the Four-Part Test

All companies in Pennsylvania (regardless of industry, size, or revenue) that perform these qualified research activities must satisfy the following criteria of the IRS Four-Part Test as outlined in IRC §41(d):

1. Business Component Test
The activity must be related to the performance, quality, reliability, or new or improved function of a business component of the taxpaying company. A business component is defined to be “any product, process, software, technique, formula or invention used by the taxpaying company in trade or business.”
2. Technological Uncertainty Test
The activity must involve the elimination of uncertainty. An activity entails uncertainty if the taxpayer did not know one or more of the following:

  • Whether the desired results could be achieved.
  • The specific means of achieving the desired result.
  • The appropriate design of the business component is being developed.
    3. Process-of-Experimentation Test
    “Substantially all” of the activity must involve a “process of experimentation” involving more than one possible approach toward achieving the result, where the capability or method of achieving the result is uncertain at the outset of the activity.
    4. Technological‐in‐Nature Test
    Activities that are undertaken to discover information must be technological in nature. For example, experiments used to eliminate uncertainty must rely on principles of physical or biological sciences, engineering, or computer science.

    Credit Carryforward

    The PA research credit can be carried forward 15 years.

    R&D Tax Credit Calculation Method

    PA Form REV-545 can be used to calculate the R&D credit. Application must be submitted on the Research and Development (R&D) Tax Credit online application system by December 1.

    How To Claim Your Pennsylvania R&D Tax Credit

    Federal Form 6765 must be submitted, as well as Qualified Research Expenses from the last 4 years. Small businesses must also submit a balance sheet. The deadline to submit the necessary forms for claiming the R&D credit is December 1st of each year.

    Pennsylvania R&D Tax Credit From The Experts: GOAT.tax

    GOAT.tax was created for the purpose of educating businesses on the R&D tax credit and assisting companies that qualify for the credit to claim it. Through the 305+ years of collective automating R&D tax credit experience across our nationwide team of over 50 R&D tax professionals, we have been able to take all the guesswork out of this complex tax credit incentive. The experts at GOAT.tax can help your business with automating R&D credit through our innovative platform.
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    Hire US-based engineers, developers, or scientists.
    Designs and develops product prototypes and/or software.
    Performs experimentation and validation on products, manufacturing processes, and/or software.
    None of the above.

    This calculator has been developed utilizing data from a variety of studies conducted in the industries listed. This is only an approximation based on a variety of assumptions and should be treated as such.

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    Based on your responses, we believe that you are not currently eligible for the R&D tax credit.

    Please check back with us if you perform any product or software development-related work in the future.

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