Pennsylvania Research and Development Tax Credit
Pennsylvania Department of Community and Economic Development (DCED)
10% of incremental QRE (20% small biz)
PA R&D credit — competitive, Dec 1 deadline, credits sellable
Pennsylvania's R&D tax credit (Act 7 of 1997, Article XVII-B of the Tax Reform Code of 1971) offers 10% of qualified research expenses exceeding a calculated base amount, with a higher 20% rate for small businesses (under 25 full-time employees in Pennsylvania). Unlike most state R&D credits, Pennsylvania's is competitively allocated: if aggregate applications exceed the $55M annual cap, awards are prorated across applicants. Minimum qualifying threshold is $25,000 in annual QRE. Applications are submitted annually through the myPATH system, open August 1 through December 1. Applicants must have at least two years of R&D expenditure history in Pennsylvania. Unused credits may be sold or assigned to other Pennsylvania taxpayers — a significant liquidity mechanism for pre-revenue or loss-year companies.
- Funding type
- Tax Credit
- Level
- State
- Amount range
- $2,500
- Realistic amount
- A PA tech company with $400K in annual PA QRE and a $300K historical base generates $10,000 (10% × $100K incremental). A…
- Deadline
- December 1 annually — applications open August 1 through December 1
- Status
- active
- States
- PA
- Payment model
- tax offset
Who qualifies
- Business conducting qualified research activities within Pennsylvania
- Must have at least two years of Pennsylvania R&D expenditure history — first-year entrants are ineligible
- Minimum $25,000 in annual Pennsylvania qualified research expenses (QRE) required to file
- Qualified research must satisfy the federal IRC §41 four-part test (technological in nature, discover information, process of experimentation, qualified purpose)
- Research must be conducted in Pennsylvania (PA-located expenses only count)
- Eligible entity types: corporations, partnerships, and other taxable Pennsylvania entities
- Small businesses (under 25 Pennsylvania full-time employees) receive a higher 20% credit rate
- Must apply annually through myPATH during the August 1 – December 1 window — credit is not claimed directly on a tax return without a DCED credit certificate
Hard requirements
- Minimum project size: $25,000
What it covers
Eligible expenses
- Wages and salaries paid to Pennsylvania employees directly engaged in qualified research activities
- 65% of amounts paid to Pennsylvania-based independent contractors for qualifying research services
- Supplies and materials consumed in the conduct of qualified research in Pennsylvania
- Costs of using research facilities in Pennsylvania for qualified research
Ineligible expenses
- Research funded by any government grant, contract, or subsidy
- Research conducted outside Pennsylvania
- Research in social sciences, arts, humanities, or management
- Routine testing, quality control, or troubleshooting that does not meet the §41 experimentation standard
- Software development for internal administrative functions (HR, accounting platforms)
- QRE below the $25,000 annual threshold — minimum required to apply
How to apply
-
1
Confirm two-year Pennsylvania R&D history
Verify that your business has at least two years of qualifying R&D expenditures in Pennsylvania. First-year applicants are ineligible. Gather Pennsylvania QRE documentation for the current and prior year minimum.
~2 hrs
-
2
Document Pennsylvania-located QRE
Segregate QREs for research conducted in Pennsylvania: wages for PA-based employees on qualifying projects, PA-located supply costs, and 65% of PA contractor costs for qualifying research. Apply the federal §41 four-part test to each qualifying project. Minimum $25,000 in annual PA QRE required.
~8 hrs
-
3
Compute base amount and incremental credit
Calculate the Pennsylvania base amount (historical average PA QRE from the base period). Apply 10% (or 20% for small businesses under 25 PA employees) to the amount by which current-year PA QRE exceeds the base. Note: if total statewide applications exceed $55M, credits will be prorated — plan for possible reduction.
~4 hrs
-
4
Submit application via myPATH (August 1 – December 1)
Log into myPATH (mypath.pa.gov) and complete the R&D Tax Credit application during the annual window. Attach QRE documentation, base amount calculation, and employee count confirmation (for small business rate). December 1 is a hard cutoff — missed applications wait until the following year.
~4 hrs
-
5
Receive credit certificate and claim or sell
DCED issues credit certificates after processing. Claim the credit on your Pennsylvania corporate net income tax or personal income tax return. If your tax liability is insufficient, the credit may be sold or assigned to another Pennsylvania taxpayer through the DCED etides portal — typically at 85-90 cents on the dollar. Contact DCED for the credit sale/assignment procedure.
~3 hrs
Industry & certifications
NAICS codes: 541714, 541715, 325, 334, 336, 517
PA credits are sellable — pre-revenue startups convert them to cash at ~85-90¢ on the dollar. Miss the Dec 1 window and you wait a full year.
Deadline & timing
Annual application window: August 1 through December 1. Applications submitted through the myPATH online portal (mypath.pa.gov). DCED processes applications and issues credit certificates after the December 1 close. Credits are allocated in the following calendar year. Missing the December 1 deadline means waiting until the next application cycle — unlike a pure tax-filing credit, this is a competitive application with a hard annual cutoff. Applicants must have at least two years of Pennsylvania R&D expenditure history.
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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.