Massachusetts R&D Tax Credits

State and Federal Credits Available

10% Incremental Rate

On excess QREs+ ASC Option (10%)

+15% Basic Research

On qualified payments (IRC §41(e) base)

15-Yr Carryforward

Unused credits + ∞ for caps

$456 Min Tax Floor

Cannot reduce below $25K + 75% excise limit

The Massachusetts R&D Tax Credit, governed by M.G.L. c. 63, § 38M and detailed in 830 CMR 63.38M, provides businesses with a nonrefundable (except for certified life sciences companies) tax credit for qualified research expenses (QREs) conducted in the state. Modeled closely after the federal IRC § 41 credit, it encourages innovation in sectors like life sciences, technology, and manufacturing by offsetting corporate excise tax liabilities through the Massachusetts Department of Revenue (DOR). Available to corporations subject to the corporate excise and owners of flow-through entities, the credit applies only to in-state research activities.

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10% Incremental Rate

On excess QREs+ ASC Option (10%)

+15% Basic Research

On qualified payments (IRC §41(e) base)

15-Yr Carryforward

Unused credits + ∞ for caps

$456 Min Tax Floor

Cannot reduce below $25K + 75% excise limit

Key Highlights

10% credit on incremental Massachusetts QREs over the base amount, plus 15% for basic research payments
Alternative Simplified Credit (ASC) at 10% of excess over 50% of prior 3-year average QREs (post-2020)
Nonrefundable default, but certified life sciences companies may elect refunds via the Massachusetts Life Sciences Center
Applies to research performed at Massachusetts facilities; prorated for multi-state activities
Corporations claim under M.G.L. c. 63; pass-through owners under M.G.L. c. 62
No reduction of the $456 minimum corporate excise tax

Who Qualifies for the Massachusetts R&D Tax Credit

Eligibility mirrors federal IRC § 41 but requires activities and expenses tied to Massachusetts facilities. Businesses must conduct qualified research—developing or improving products, processes, software, or techniques with technological uncertainty.

Eligible Entities

C Corporation May claim both the regular and basic research credit
S Corporation Limited entity-level use; can pass credits to shareholders
Partnerships / LLCs Credits pass through to owners via Schedule K-1

Qualified Research Expenses (QREs)

How to Calculate the Massachusetts R&D Tax Credit

Massachusetts offers two calculation methods: the Regular Method (incremental over a base amount) and the Alternative Simplified Credit (ASC), which simplifies the base for businesses with fluctuating expenses. Both use only Massachusetts-sourced QREs and gross receipts (or federal with election). Elections, such as using state-only gross receipts, are binding for three years.

Regular Method

Determine total Massachusetts QREs for the tax year (wages, supplies, etc., conducted in-state).
Compute the base amount: fixed-base percentage × average Massachusetts gross receipts for the prior four years (minimum 50% of current-year QREs).
Fixed-base percentage: For tax years beginning on or after January 1, 2015, computed using a rolling lookback to recent years under the state’s post-2014 formula (capped at 16%).
Gross receipts: Consistent with corporate excise apportionment rules and IRC § 41 definitions; elect Massachusetts-sourced or federal gross receipts (binding for three years).
Calculate excess QREs: Current QREs minus base amount.
Credit = 10% × excess QREs + 15% × (basic research payments minus base period amount). (Basic research uses the federal IRC §41(e) base-period rules.)

Example Calculation

QREs = $1,000,000; Average prior gross receipts = $5,000,000; Fixed-base % =12%

Base = 12% × $5,000,000 = $600,000 (not below 50% of $1M = $500,000)

Excess = $1,000,000 – $600,000 =$400,000

Regular credit = 10% × $400,000 =$40,000

Add basic research: 15% × $20,000 =$3,000

Total Credit = $43,000

Alternative Simplified Credit (ASC)

Ideal for startups or variable spenders, ASC uses a simpler base without historical fixed percentages.

Calculate average Massachusetts QREs for the prior three years (use 0% if no prior QREs).
Base = 50% of that average.
Excess = Current QREs minus base.
Credit = 10% × excess (phased in: 5% for 2015–2017; 7.5% for 2018–2020; 10% for 2021+). No basic research add-on under ASC.

Example Calculation

Current QREs = $1,000,000; Prior 3-year average QREs =$700,000

Base = 50% × $700,000 =$350,000

Excess = $1,000,000 – $350,000 =$650,000

ASC = 10% × $650,000 =$65,000

Total Credit = $65,000

Gross Receipts for Base Calculation

Use Massachusetts gross receipts consistent with the corporate excise apportionment rules and IRC § 41 definitions.
Massachusetts no longer uses the historical 3 percent startup fixed-base regime.
No prior gross receipts? Base defaults to 50% of current QREs.

Estimate Your Credits

Massachusetts-Specific Rules

Massachusetts tailors its R&D credit to support high-innovation sectors like life sciences, alongside separate MLSC tax incentives and capital programs.

High Rate with Indefinite Carryforward

The 10% rate on incremental QREs, combined with indefinite carryforward for credits capped by the 75% excise rule, provides long-term value—especially valuable for life sciences and tech firms with sustained R&D investments.

Liability Caps for Optimized Use

Credits offset 100% of the first $25,000 in excise liability plus 75% above $25,000 (single $25K threshold for combined groups). This caps immediate use but enables indefinite carryover for disallowed portions, ensuring no permanent loss.

ASC Option for Simplified Compliance

Elect ASC for a 10% credit on excess over 50% of prior 3-year QRE averages—often attractive in volatile industries. The ASC election is intended to be a longer-term choice and generally should not be changed from year to year without a strong justification and consultation with your tax advisor.

Other Important Rules

S Corporation Treatment: Credits apply at the entity level against excise (non-income or income measure); no pass-through to shareholders.
Pass-Through Entities: Partnerships and LLCs allocate credits to owners via K-1; owners claim against personal excise under M.G.L. c. 62.
Life Sciences Refund Election: Certified companies may apply annually through the Massachusetts Life Sciences Center Tax Incentive Program for refundable research credit allocations. Refundability applies only to credits awarded through the program for that year.
Audit Guidelines: Retain records until the statute of limitations expires (generally 3 years after filing); many practitioners recommend 5–7 years as DOR may examine multiple years.
2025 Updates: TIR 25-3 (May 2025) confirms financial institutions' eligibility; no rate or cap changes.

High Rate with Indefinite Carryforward

Liability Caps for Optimized Use

ASC Option for Simplified Compliance

Other Important Rules

S Corporation Treatment: Credits apply at the entity level against excise (non-income or income measure); no pass-through to shareholders.
Pass-Through Entities: Partnerships and LLCs allocate credits to owners via K-1; owners claim against personal excise under M.G.L. c. 62.
Life Sciences Refund Election: Certified companies may apply annually through the Massachusetts Life Sciences Center Tax Incentive Program for refundable research credit allocations. Refundability applies only to credits awarded through the program for that year.
Audit Guidelines: Retain records until the statute of limitations expires (generally 3 years after filing); many practitioners recommend 5–7 years as DOR may examine multiple years.
2025 Updates: TIR 25-3 (May 2025) confirms financial institutions' eligibility; no rate or cap changes.

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Massachusetts R&D Tax Credits Case Study

A Massachusetts life sciences startup recovered $150,000 in state R&D credits through optimized ASC election and life sciences refund application.

$750,000

total state R&D tax credits earned

60%

of wages qualified for credits

$1.2M

total R&D tax credits earned (federal + state combined)

Frequent Asked Questions

What is the Massachusetts R&D tax credit?

The Massachusetts Research Credit offers 10% on excess qualified research expenses over the base amount, plus 15% for basic research payments, under M.G.L. c. 63, § 38M. Limited by excise caps but with indefinite carryforward for disallowed portions. Strike Tax maximizes your claim.

What activities qualify for Massachusetts’s R&D tax credit?

Activities must meet IRC § 41 standards—technological in nature, eliminating uncertainty in products or processes—and be conducted at Massachusetts facilities. Examples include software development or biotech prototyping. Strike Tax identifies qualifying projects.

How much can my business save with Massachusetts’s R&D tax credit?

For $1 million in incremental QREs, you could save $100,000, plus federal stacking. Life sciences firms often exceed this via refunds. Use Strike Tax’s R&D Credit Calculator for personalized estimates.

Are Massachusetts R&D tax credits refundable for small businesses?

Generally nonrefundable, but certified life sciences companies can elect refunds through the Massachusetts Life Sciences Center. Unused credits carry forward 15 years or indefinitely for cap-disallowed amounts. Strike Tax navigates options.

How do I apply for Massachusetts’s R&D tax credit?

File Schedule RC (or RC-A for aggregations) with your corporate excise return (Form 355/356). Attach federal Form 6765 if applicable; no pre-approval needed. Strike Tax handles documentation and filing.

Can Massachusetts businesses claim both state and federal credits?

Yes, stack state and federal credits on the same QREs for compounded savings. Massachusetts bases use state-sourced data. Strike Tax optimizes dual claims.

What are the liability caps for Massachusetts R&D credits?

Credits offset 100% of the first $25,000 in excise plus 75% above, with a $456 minimum tax floor. Combined groups share one $25K threshold. Disallowed portions carry indefinitely.

How does the Alternative Simplified Credit (ASC) work in Massachusetts?

ASC provides 10% (post-2020) on QREs exceeding 50% of the prior 3-year average—simpler for startups. The election is a longer-term choice; consult your tax advisor before changing. Strike Tax evaluates if ASC beats the regular method.

Do S corporations pass through Massachusetts R&D credits to shareholders?

No; S corps apply credits entity-level against excise tax. Partnerships/LLCs do pass through via K-1. Strike Tax advises on entity impacts.

What documentation is required for Massachusetts R&D audits?

Maintain records for at least 3 years after filing (recommend 5–7 years): employee time logs, project descriptions, expense receipts, and organizational charts. Sampling allowed with DOR agreement. Strike Tax prepares audit-ready files.

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