Massachusetts Research Tax Credit

Who qualifies

• Must be a business corporation subject to Massachusetts corporate excise under M.G.L. c. 63, §32 (domestic C-corp) or §39 (foreign C-corp doing business in MA)
• S corporations may apply credit against their own MA corporate excise liability — credit does NOT flow through to shareholders
• Partnerships, LLCs, joint ventures, and other unincorporated entities do NOT qualify (treated as flow-through entities for this credit)
• Research activities must be conducted in Massachusetts (wages for MA-performed services, supplies used in MA, contract research attributed to MA facilities)
• Qualified research expenses must meet federal §41(b) definition as a prerequisite (MA QRE is a subset: only MA-located activity counts)
• No minimum revenue or employee threshold — startup C-corps qualify from first year of MA-located research activity
• Aggregated group rules apply: controlled group members (§41(f)(1)(A) definition) must combine their MA QREs and share a single $25K liability threshold

Hard requirements

• Must be incorporated

What it covers

How to apply

1. 1

   Identify and document Massachusetts-located QREs

   Separate all R&D expenses into MA-located vs. out-of-state. MA QREs include: wages for qualified services performed in Massachusetts; supplies used or consumed in Massachusetts; fees for computers located in Massachusetts; 65% of contract research payments attributed to MA-based contractors. Keep payroll records by employee work location and project timesheets. This is the most documentation-intensive step and the most audited.

   ~8 hrs

2. 2

   Compute the Massachusetts fixed-base percentage and base amount

   Calculate your MA fixed-base percentage: aggregate MA QREs during base period (1984–1988 or startup rules if fewer than 3 base-period years) divided by aggregate gross receipts for the same period. Multiply by average annual gross receipts for the 4 preceding tax years to get the MA qualified research base amount (floor: 50% of current-year MA QREs). The incremental credit applies to current-year MA QREs exceeding this base. Alternatively, elect the MA alternative simplified credit (10% on QREs exceeding 50% of 3-year average MA QREs). Early-stage companies with no base-period history use the 16% fixed-base percentage startup rule.

   ~6 hrs

3. 3

   Calculate basic research payment credit (if applicable)

   If your corporation makes payments for basic research (§41(e)(2) definition) conducted at a Massachusetts-located research facility — including MIT, Harvard, UMass, Boston University, and qualifying research consortia — calculate the 15% credit on the excess of MA basic research payments over the MA base period amount. Maintain written agreements with research institutions establishing that the research is basic (not applied) research. This route is underused by biotech companies despite the higher rate.

   ~3 hrs

4. 4

   Apply the credit limitation and determine usable amount

   The credit (including carryovers) may not exceed: 100% of the first $25,000 of corporate excise liability, plus 75% of any excise due above $25,000. The credit may not reduce excise below the §32(b) minimum ($456). Amounts disallowed due to the 75% rule carry forward indefinitely. Amounts disallowed because they exceed tax liability carry forward for 15 years. Maintain a credit carryforward schedule distinguishing the two pools.

   ~2 hrs

5. 5

   Complete Schedule RC and file with Form 355

   Complete Massachusetts Schedule RC (Research Credit) showing the credit computation. Attach to Form 355 (C-corp corporate excise return) or Form 355S (S-corp). File electronically via MassTaxConnect. The election between the standard incremental method and the alternative simplified credit must be made on the return for the first year it is claimed and is binding for 3 consecutive years.

   ~2 hrs

6. 6

   Apply for MLSC or ClimaTech refundability (certified companies only)

   If your company is a certified life sciences company under the MLSC tax incentive program, or a certified climatetech company, apply separately to the MLSC (application window: typically January–March each year) to receive up to 90% of unused research credit as a cash refund. This is a separate competitive application process — the research credit itself is automatic on your tax return, but the refundability feature requires MLSC certification and annual program participation.

   ~5 hrs

Industry & certifications

NAICS codes: 541711, 541712, 541511, 541512, 325412, 325413, 325414, 336411, 334510, 541330

Deadline & timing

File Schedule RC with Form 355 (C-corp) or Form 355S (S-corp) with your Massachusetts corporate excise return. Calendar-year filers: return due April 15 with automatic 6-month extension to October 15. Estimated tax payments of the corporate excise are due quarterly. Carryforward credits attach to subsequent returns — maintain separate records of 15-year credits vs. indefinitely carryable amounts (75%-rule disallowed credits carry indefinitely). Certified MLSC or ClimaTech companies must apply to their respective programs separately to access the 90% refundability feature; the MLSC application window is typically January–March for that year's tax incentive cycle.

Programs that stack well

• Research & Development Tax Credit (Section 41)
• Massachusetts Life Sciences Center Tax Incentive
• Massachusetts Climatetech Tax Incentive

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