Connecticut Research & Development Tax Credit
Connecticut Department of Revenue Services
20% incremental + 1–6% volume
Two stacked R&D credits with small-co refund option
Connecticut offers two stacked R&D tax credits for corporations: an incremental credit (20% of the year-over-year increase in Connecticut qualified research expenses above the federal base period amount) and a non-incremental volume credit (1–6% of all Connecticut QRE, scaled by total spend level). Both are available simultaneously and apply to the same expenses. Partial refundability applies: companies with gross receipts under $70 million may elect a 65% cash refund of unused credit in lieu of carryforward. C-corporations only — pass-throughs do not qualify.
- Funding type
- Tax Credit
- Level
- State
- Amount
- Two concurrent credits: (1) Incremental credit: 20% of the amount by which Connecticut qualified research expenses exceed the federal base period amount (same base as federal §41). (2) Non-incremental volume credit: 1% to 6% of total Connecticut QRE, with the rate increasing in tiers based on total QRE level — 1% on QRE up to $1M; 2% on QRE from $1M–$2M; 3% on QRE from $2M–$3M; 4% on QRE from $3M–$4M; 5% on QRE from $4M–$5M; 6% on QRE above $5M. Both credits apply to the same expenses and are claimed together. Unused credits carry forward 15 years; companies under $70M gross receipts may alternatively elect a 65% refund of unused credit.
- Realistic amount
- A Connecticut biotech company with $3M in Connecticut QRE above its federal base amount earns $600K from the incremental…
- Deadline
- Rolling — claimed annually on Connecticut Corporation Business Tax return (Form CT-1120)
- Status
- active
- States
- CT
- Payment model
- tax offset
Who qualifies
- C-corporations subject to Connecticut Corporation Business Tax — pass-through entities (S-corps, partnerships, LLCs taxed as partnerships) do not qualify
- Must conduct qualified research in Connecticut that meets the federal §41 four-part test: technological in nature, aimed at developing or improving a business component, involving genuine uncertainty, conducted through experimentation
- Connecticut qualified research expenses (CT QRE) are computed using federal §41 definitions applied to Connecticut-located activities: wages, supplies, 65% of contract research payments
- Incremental credit: applies to CT QRE above the company's federal base period amount (same base amount computation as federal §41)
- Non-incremental volume credit: applies to all CT QRE regardless of year-over-year change — companies with stable or declining R&D still earn this tiered credit
- Small company refund election: C-corporations with gross receipts under $70 million for the taxable year may elect a 65% cash refund of the unused credit balance instead of carryforward; the remaining 35% is forfeited
- Companies NOT electing refund: unused credits carry forward up to 15 years
- No minimum employee or revenue threshold for the base credits; the $70M gross receipts threshold applies only to the refund election
Hard requirements
- Must be incorporated
What it covers
Eligible expenses
- Wages of Connecticut-based employees directly performing qualified research activities
- Wages of Connecticut-based employees directly supervising or directly supporting qualified research
- Supplies and materials consumed in Connecticut-located qualified research processes
- 65% of payments to contractors performing qualified research at Connecticut locations
- Basic research payments to Connecticut universities and qualified research organizations (at the same 20% incremental / 1–6% volume rates)
Ineligible expenses
- Research conducted outside of Connecticut — even by Connecticut-based employees working remotely in another state
- Research funded or reimbursed by a third party (government contracts, client-funded R&D where substantial rights are retained by the funder)
- Research that fails the federal §41 four-part test
- Research in social sciences, arts, or humanities
- Routine data collection, market research, and consumer surveys
- Post-commercialization quality assurance testing not involving technical uncertainty
- Management, administrative, and support time not directly tied to qualified research activities
- Pass-through entity research expenses — S-corporations, partnerships, LLCs taxed as partnerships, and sole proprietors do not qualify for this credit
How to apply
-
1
Segregate Connecticut-located qualified research expenses
Start from your federal §41 QRE figure and carve out only expenses for research conducted in Connecticut. Wages for employees performing, supervising, or directly supporting research at Connecticut facilities qualify. Out-of-state contractor costs and expenses for research conducted outside Connecticut do not. For companies with multi-state R&D operations, build an allocation by work location — Connecticut DRS audits this apportionment closely.
~8 hrs
-
2
Compute the incremental credit (20%)
Use the same federal §41 base-period methodology: compute your fixed-base percentage from the 1984–1988 period (or use startup rules if applicable), multiply by current Connecticut gross receipts to get the base amount. The incremental credit is 20% of the amount by which current-year CT QRE exceeds this base amount. For companies with large historical R&D bases, the incremental credit may be small even with substantial current-year spend — the volume credit (Step 3) compensates for this.
~4 hrs
-
3
Compute the non-incremental volume credit (1–6%)
Apply the tiered rate schedule to your total Connecticut QRE regardless of the base amount: 1% on the first $1M; 2% on QRE from $1M–$2M; 3% on QRE from $2M–$3M; 4% on QRE from $3M–$4M; 5% on QRE from $4M–$5M; 6% on QRE above $5M. Sum the tiers to get your volume credit. For a company with $3M CT QRE, this yields: $10K + $20K + $30K = $60K. This credit does not require any year-over-year increase to produce value.
~2 hrs
-
4
Determine refund vs. carryforward election
If the company's gross receipts are under $70M for the taxable year, evaluate the refund election. Calculate total credit (incremental + volume), subtract Connecticut tax liability — the excess can be either (a) refunded at 65% with 35% forfeited, or (b) carried forward for up to 15 years. Model which option is better based on projected future Connecticut tax liability. Growing companies with increasing CT income may prefer carryforward; cash-constrained startups with limited near-term CT income typically benefit from the refund.
~2 hrs
-
5
Complete Form TP-348 and file with CT-1120
Complete Form TP-348 (Tax Credit for Research and Development Expenses). Part I computes the incremental credit; Part II computes the volume credit; Part III tracks carryforward credits from prior years. Transfer the total credit to Form CT-1120. If electing the small-company refund, indicate the election on TP-348 — this must be on the original timely-filed return.
~4 hrs
-
6
Maintain Connecticut-specific documentation
Keep records showing that each qualifying activity occurred at a Connecticut location: employee project timesheets with work location, Connecticut-address supply invoices, and Connecticut research contractor agreements. Connecticut DRS audits of this credit frequently request location evidence in addition to the federal §41 documentation. Retain records for at least 3 years from return due date (6 years if fraud concerns apply).
~5 hrs
Industry & certifications
NAICS codes: 325412, 541714, 541715, 336411, 541511, 541330, 522390
Connecticut's two-credit structure is unusual — the volume credit pays out even when R&D is flat year-over-year, making it more dependable than pure incremental credits. C-corp only; S-corps and LLCs cannot claim this credit.
Deadline & timing
File Form TP-348 (Tax Credit for Research and Development Expenses) with the Connecticut Corporation Business Tax return (Form CT-1120). Calendar-year C-corporations are due April 15, with automatic extension to October 15. The small-company refund election (companies with gross receipts under $70M) must be made on a timely-filed return and cannot be made on an amended return. Carryforward credits from prior years are tracked on Form TP-348 Part III.
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Last reviewed 2026. GrantCompass is an independent funding-discovery tool and is not affiliated with any government agency. Always confirm details on the official program page.