Best State R&D Tax Credits That Stack With the Federal Credit
Many states offer their own R&D tax credit that stacks directly on top of the federal Section 41 credit, letting businesses earn two credits on the same qualified research expenses. Pick your state below to see its exact rate, refundability, and how it pairs with the federal credit.
Many states offer their own R&D tax credit that stacks directly on top of the federal Section 41 credit. Rates range from 3% to 30% of qualifying spend, and Hawaii, Delaware, and newly-reinstated Michigan make the credit fully refundable so pre-revenue companies get cash. Arizona (24% + a 75% refund election) and Louisiana (30% for small employers) carry the highest marginal rates. Virginia's state credit expired for tax years beginning in 2025 — see its dated status below.
What does your state offer? 10-second check
Pick your state — we'll show its exact R&D credit rate, refundability, carryforward, and how it pairs with the federal §41 credit. Every figure below is dated and sourced.
Want the full stack, not just one credit. GrantCompass matches your business to every federal grant, state credit, and loan you qualify for — with a step-by-step plan for each. Free eligibility check, 2 minutes.
See your grants — free →Updated July 10, 2026 — every rate, refundability rule, and carryforward figure on this page was re-verified against state revenue-department and economic-development sources this update; see Sources below.
The federal Research & Development Tax Credit under IRC Section 41 lets Qualified Small Businesses offset up to $500,000 per year in payroll taxes (for up to five years, $2.5M lifetime) — and that's only the starting point. Every dollar of qualifying research you conduct in a state with its own R&D credit earns a second, independent credit layered on top of the federal benefit. In practice, a California startup spending $1M on in-state R&D can claim roughly $65,000 from the federal credit plus a further six figures from a state credit where one exists — with no double-counting and, in most states, no cap.
Not all state credits are equal. Some are incremental (you only earn the credit on R&D above your historical average), while others are volume-based (the credit applies to every dollar of qualifying spend). Some are fully refundable — meaning loss-year or pre-revenue companies receive the balance as cash — while others are purely non-refundable carryforwards that only help once you're profitable. The 13 programs below are the most valuable active state R&D credits in 2026, ranked by their combination of rate, refundability, and accessibility for growth-stage companies. Not every state is covered here in depth — use the picker above for an honest read on any of the 50.
The 13 best state R&D tax credits, ranked
Real programs from our US funding catalog — tap any to see full eligibility, amounts, and how to apply.
1 Hawaii Research Activities Tax Credit
Rare combination: computed directly off your federal credit AND fully refundable — pre-revenue companies receive cash. $5M annual statewide cap.
2 Louisiana Research and Development Tax Credit
Highest marginal rate (30%) of any state credit for small companies; volume-based with no base calculation required.
3 Arizona Research & Development Tax Credit
Highest incremental rate in the US plus a rare 75% cash-refund option for companies under 150 employees.
4 Vermont Research and Development Tax Credit
Simple piggybacking on your federal Form 6765 — no separate Vermont QRE calculation; 10-year carryforward.
5 Delaware Research and Development Tax Credit
Fully refundable — applies against both income tax and franchise tax. Small-business rate (20%) applies under a $31M gross-receipts threshold.
6 Michigan Research and Development Tax Credit
Michigan reinstated its R&D credit for TY2025 after a 13-year gap — fully refundable, but the $100M statewide cap ($25M reserved for small business) was oversubscribed and prorated in its first year.
7 Rhode Island Research and Development Tax Credit
22.5% top rate on the first $111K tier is one of the highest incremental rates in the Northeast; carryforward just extended from 7 to 15 years for TY2026+.
8 Indiana Research Expense Credit
15% on the first $1M is one of the highest incremental tiers among US states; new credit first claimable for TY2024.
9 Connecticut Research & Development Tax Credit
Two credits stacked together; qualified small businesses under $70M gross receipts can exchange unused credit for a 65% cash refund (90% for qualified biotech since 2025), capped at $1.5M/year.
10 Pennsylvania Research and Development Tax Credit
Unused credits are legally sellable to profitable corporations after a 1-year hold — pre-revenue companies convert them to cash at ~85–90 cents on the dollar.
11 Minnesota Research Credit
Became partially refundable in 2025 (19.2% of unused credit paid as cash for TY2025, rising to 25% for TY2026–2027) — newly valuable for growth-stage companies.
12 Massachusetts Research Tax Credit
MLSC certification converts a non-refundable credit into a 90% cash refund (statewide MLSC cap raised to $40M in 2025) — one of the most powerful liquidity mechanisms for MA biotech/climatetech.
13 Nebraska Advantage Research and Development Tax Credit
15% rate plus the longest carryforward of any state R&D credit in the US — 20 years.
The best refundable state R&D credit for a pre-revenue startup is Hawaii's, because it's fully refundable, computed straight off your federal §41 credit with no separate base-period math, and its $5M cap has room compared with the demand-driven proration risk in Michigan's brand-new program.
Hawaii pays 20% of the federal credit apportioned to Hawaii research as cash, with no offsetting income-tax requirement. Michigan's newly reinstated credit is also fully refundable but had its first year (2025) prorated after statewide claims exceeded the $100M cap — a real risk for a company counting on the full amount.
The highest marginal rate available to a small company anywhere in the US is Louisiana's 30%, because it applies to every dollar of qualifying spend (not just growth above a base) for any Louisiana taxpayer with fewer than 50 Louisiana employees.
Arizona's 24% and Vermont's 27% both come close, but Arizona's rate steps down to 15% above $2.5M and Vermont's 27% is a rate applied to your (smaller) federal credit rather than to raw QRE. Louisiana's volume-based 30% has no base-period reduction — the trade-off is that it's non-refundable with a 5-year carryforward and now a $12M statewide cap.
Refundable vs. non-refundable: why it matters for pre-revenue companies
A non-refundable credit only offsets tax you actually owe; a refundable credit pays you cash even at zero liability. For profitable companies this distinction barely matters — carryforwards get used in future years. For pre-revenue startups and loss-year companies, non-refundable credits can accumulate for years before they're ever used.
Fully refundable: Hawaii, Delaware, and — new for TY2025 — Michigan. Partially refundable: Arizona (75% election, small businesses), Connecticut (65–90% exchange, qualified small businesses), Minnesota (19.2%–25%), Wisconsin (25%), and Massachusetts (90% via MLSC certification for life sciences). Non-refundable but transferable: Pennsylvania, where you can sell the credit certificate to a profitable company for roughly 85–90 cents on the dollar. Purely non-refundable: Louisiana, Vermont, Rhode Island, Indiana, and Nebraska — carryforwards only. Virginia's fully refundable credit expired for tax years beginning in 2025; see the dated note in "What changed" below.
| Refundability | States |
|---|---|
| Fully refundable | Hawaii, Delaware, Michigan (new 2025) |
| Partially refundable | Arizona, Connecticut, Minnesota, Wisconsin, Massachusetts (MLSC) |
| Non-refundable, transferable | Pennsylvania |
| Non-refundable, carryforward only | Louisiana, Vermont, Rhode Island, Indiana, Nebraska |
Application windows and competitive caps: common traps
Most state R&D credits are pure entitlements — file your return with the credit form, and you receive the credit subject only to your own tax liability. But several high-value credits have competitive allocation caps or hard filing deadlines that can eliminate your benefit entirely if you miss them.
Florida's application window runs a fixed 7 days (March 20–26 for TY2025 expenses) — miss it and you forfeit the year. Pennsylvania's window runs August 1 – December 1 via myPATH. Louisiana's $12M annual cap (since July 1, 2025) and Michigan's $100M annual cap (new for TY2025, already oversubscribed) fill first-come, first-served. Maryland caps total approvals at $250,000 per applicant, with applications due November 15 following the tax year. Arizona's refundable election now runs on a random-lottery application that opens the first business day of each year. For any capped, lottery-based, or window-based credit, build a reminder 3–4 months ahead so your CPA can prepare the application.
Even for entitlement credits, some states require pre-approval or certification. Massachusetts' MLSC cash-refund program requires annual certification with a hiring commitment (10+ net new jobs in 2026) and a hard March 31 application deadline — applying after year-end for a refund certificate is not possible.
What changed in 2025–2026
Virginia's R&D credit expired for tax years beginning on or after January 1, 2025 — the last claimable year was TY2024 (September 1, 2025 filing deadline). Virginia had been a fully refundable 15–20% credit; businesses conducting R&D in Virginia now rely solely on the federal §41 credit unless the General Assembly reinstates a state credit. Any source still describing Virginia's credit as currently active is out of date.
Michigan reinstated a state R&D credit for TY2025 — its first since the prior credit was repealed in 2012 — under Public Acts 186 & 187 of 2024. The new credit is fully refundable at 3% of QRE up to base plus 15% of the excess (under 250 employees) or 10% (250+), capped at $100M statewide with $25M reserved for small business. 2025's inaugural year was oversubscribed, triggering statutory proration.
Minnesota's Research Credit became partially refundable for tax years beginning after December 31, 2024 — 19.2% of unused credit is paid as cash for TY2025, rising to 25% for TY2026–2027. Rhode Island's carryforward period was extended from 7 to 15 years for tax years beginning on or after January 1, 2026. Connecticut's qualified-biotech exchange rate rose from 65% to 90% starting in 2025. Delaware's small-business gross-receipts threshold rose to $31M for the 2025–2026 tax years (from $20M).
Indiana enacted an entirely new Research Expense Credit via House Enrolled Act 1001 (2024), first claimable on the TY2024 return — a new stacking opportunity for Midwest manufacturers and tech companies that previously had no standalone Indiana R&D credit.
Oregon's general R&D credit remains repealed (2018) — though Oregon runs a narrow, separate semiconductor-specific R&D credit with an October 15, 2026 certification deadline. North Carolina's credit remains repealed (tax years beginning 2016+). Do not claim a general R&D credit for either state.
Frequently asked questions
Do state R&D tax credits stack with the federal Section 41 credit?
Yes — state and federal R&D credits are computed independently and apply to the same qualified research expenses. If you conduct research in a state with its own credit, you can claim both the federal Section 41 credit (on your federal return) and the state credit (on your state return) for the same activities. There is no federal rule that offsets or reduces state credits. The only interaction to manage is the §174 deduction reduction if you claim the federal credit without making a §280C election — consult a CPA who handles both federal and state R&D credits to model the net benefit.
Which states have the most generous R&D tax credit rates?
By headline credit rate: Louisiana offers 30% for companies with fewer than 50 Louisiana employees (volume-based, no base calculation); Arizona offers 24% on the first $2.5 million of incremental QRE; Vermont provides 27% of your Vermont-apportioned federal §41 credit; Rhode Island offers 22.5% on the first $111,111 of incremental QRE; and Connecticut combines a 20% incremental credit with a 1–6% volume credit. For refundable credits regardless of rate, Hawaii (20% of the federal credit, fully refundable), Delaware (up to 20%, fully refundable), and Michigan (newly refundable for 2025) are top choices.
Are any state R&D tax credits refundable — meaning startups can receive cash?
Yes. Hawaii's credit is fully refundable — it equals 20% of your federal §41 credit apportioned to Hawaii research, with a $5M annual statewide cap. Delaware's credit is fully refundable under Delaware Code §2070(c). Michigan's newly reinstated credit (effective TY2025) is fully refundable, capped at $100M statewide with $25M reserved for small businesses. Arizona lets businesses under 150 employees elect a 75% cash refund of the credit exceeding Arizona tax liability, capped at $100,000 per taxpayer. Connecticut's credit is 65% cash-refundable for qualified small businesses under $70M gross receipts (90% for qualified biotech). Minnesota is 19.2% partially refundable for TY2025, rising to 25% for TY2026–2027. Wisconsin is 25% partially refundable. Pennsylvania's credit is not refundable but is legally sellable to profitable corporations at ~85–90 cents on the dollar. Massachusetts MLSC-certified companies can receive a 90% cash refund of unused credits annually.
Can an LLC or partnership claim state R&D credits?
It depends on the state. Most states — including Arizona, California, Hawaii, Delaware, Nebraska, Indiana, Illinois, Idaho, Utah, Vermont, Ohio, Wisconsin, New Jersey, and Arkansas — allow all entity types including LLCs and partnerships to claim R&D credits. A few states restrict the credit to corporations: Connecticut's 20% incremental credit is limited to C-corporations (S-corps, LLCs, and partnerships cannot claim it, though a separate 1–6% credit is broader). Massachusetts limits its credit to C-corporations and S-corporations (LLCs and partnerships are excluded). Florida limits its credit to C-corporations subject to the Florida corporate income tax. If your business is structured as an LLC or partnership, verify your target state's entity eligibility before planning around a specific credit.
Is Virginia's R&D tax credit still available in 2026?
No. Virginia's Research and Development Expenses Tax Credit expired for taxable years beginning on or after January 1, 2025. The last year businesses could claim it was TY2024, with a September 1, 2025 filing deadline. While active, it was a fully refundable credit worth 15% of the first $300,000 in Virginia QRE (20% for research done with a Virginia public or private university). Virginia businesses can still claim the federal Section 41 credit — only the state-level credit has lapsed, unless the General Assembly reinstates it.
Does Michigan have a state R&D tax credit in 2026?
Yes — Michigan reinstated a state R&D tax credit for tax years beginning on or after January 1, 2025 (Public Acts 186 and 187 of 2024), more than a decade after its prior credit was repealed in 2012. The new credit is 3% of qualified research expenses up to your base amount, plus 15% of the excess for businesses with fewer than 250 employees (10% of the excess for larger businesses), and it is fully refundable. Total credits statewide are capped at $100 million per year, with $25 million reserved for small businesses; 2025's inaugural year saw claims exceed the cap, triggering statutory proration.
Sources
- Arizona Department of Revenue — Form 308, Credit for Increased Research Activities
- Arizona Commerce Authority — R&D Refundable Tax Credit (lottery process, caps)
- Vermont Department of Taxes — Research & Development Tax Credit
- Rhode Island Division of Taxation — Form RI-7695 (carryforward extended to 15 years for TY2026+)
- Louisiana Department of Revenue — Form R-6410, Research and Development Tax Credit
- Louisiana Economic Development — R&D Tax Credit ($12M cap, rate tiers)
- Hawaii DBEDT — Tax Credit for Research Activities (TCRA)
- Virginia Tax — R&D Expenses Tax Credit Guidelines (expired for TY2025+)
- Indiana Department of Revenue — Research Expense Credit (IC 6-3.1-4); HEA 1001 (2024)
- Connecticut DRS — Research and Experimental Expenditures Tax Credit
- Pennsylvania DCED — R&D Tax Credit; myPATH application portal
- Delaware Division of Revenue — Delaware Code §2070, R&D Tax Credit
- Minnesota Department of Revenue — Research Credit, M.S. §290.068 (2025 partial refundability)
- Massachusetts Department of Revenue — Research Tax Credit; MLSC refundability program
- Nebraska Department of Revenue — Nebraska Advantage Research and Development Act (LB 312, 20-year carryforward)
- Wisconsin Department of Revenue — Refundable Portion of Research Credit (25%, TY2024+)
- Michigan Department of Treasury — Notice Regarding New Research and Development Credit (PA 186 & 187 of 2024)
- Maryland Department of Commerce — R&D Tax Credit ($250K cap, Nov. 15 deadline)
- FloridaJobs.org — R&D Tax Credit Program (March 20–26 application window)
- Business Oregon — Semiconductor R&D Tax Credit (general R&D credit repealed 2018)