Vermont Research and Development Tax Credit
Vermont Department of Taxes
27% of VT-apportioned federal §41 credit
27% Vermont credit on your federal R&D credit
Vermont provides a non-refundable income tax credit equal to 27% of the Vermont-apportioned portion of the federal research tax credit (IRC §41 credit), making it one of the simplest state R&D credits to calculate — no separate Vermont QRE calculation is required. Vermont apportions the taxpayer's federal §41 credit by the proportion of total payroll or sales attributable to Vermont. Unused credits carry forward 10 years.
- Funding type
- Tax Credit
- Level
- State
- Amount
- 27% of the Vermont-apportioned federal §41 research credit. Vermont does not require a separate QRE calculation — the Vermont credit is computed by multiplying the taxpayer's federal §41 credit by 27% and then applying Vermont's apportionment percentage (typically payroll or sales factor). The credit is non-refundable and reduces Vermont income tax only. Unused credits carry forward up to 10 years.
- Realistic amount
- A Burlington software company with $50,000 in federal §41 credit and 60% Vermont payroll apportionment earns a Vermont c…
- Deadline
- Rolling — claimed annually on Vermont income tax return
- Status
- active
- States
- VT
- Payment model
- tax offset
Who qualifies
- Must have claimed or be eligible to claim a federal §41 research credit — the Vermont credit is 27% of the Vermont-apportioned federal credit
- Vermont apportionment is based on Vermont's share of the taxpayer's total operations — typically using the Vermont sales and payroll apportionment factors from the Vermont corporate income tax return
- All Vermont income-tax-filing entities eligible: C-corporations, S-corporations, LLCs, partnerships, sole proprietors with Vermont income
- Credit is non-refundable; unused amounts carry forward up to 10 years
- No separate Vermont QRE calculation is required — the Vermont credit piggybacks on the federal §41 calculation
- No minimum revenue, employee count, or project size requirements beyond those implicit in the federal §41 credit
- Vermont-based startups that are 100% Vermont-apportioned earn the full 27% of their federal §41 credit
What it covers
Eligible expenses
- All expenses qualifying for the federal §41 research credit that are attributable to Vermont-based operations (apportioned through Vermont's standard apportionment formula)
- Vermont-located wages of employees performing, supervising, or supporting qualified research
- Vermont-located supply costs consumed in qualified research
- 65% of Vermont-conducted contract research payments
Ineligible expenses
- Expenses that do not qualify for the federal §41 credit (not eligible for the Vermont credit either)
- Research conducted exclusively outside Vermont by fully out-of-state companies with zero Vermont apportionment
- Research funded by third parties (excluded from §41)
- Expenses in social sciences, arts, humanities, or other §41 exclusions
How to apply
-
1
Calculate your federal §41 research credit (Form 6765)
Complete IRS Form 6765 to compute your federal research tax credit. Vermont requires no additional research expense calculation — the Vermont credit is derived entirely from the federal credit amount on Form 6765, Line 44 (regular credit) or the alternative simplified credit (ASC) on Line 48.
~10 hrs
-
2
Apply Vermont apportionment percentage
Determine Vermont's share of your total business activity using your Vermont apportionment percentage (from Vermont Form CO-411 or applicable return). For single-state Vermont companies, the apportionment factor is 100%. Multiply your federal §41 credit by the Vermont apportionment factor.
~1 hrs
-
3
Apply the 27% Vermont credit rate
Multiply the Vermont-apportioned federal §41 credit by 27% to compute the Vermont Research and Development Tax Credit for the year.
~0.5 hrs
-
4
Complete Vermont Form BA-404
Report the credit on Form BA-404 (Tax Credits Earned, Applied, Expired, and Carried Forward). This form tracks the Vermont R&D credit along with other Vermont business credits, carryforward amounts by vintage year, and amounts applied to current-year Vermont income tax. Attach to Form CO-411 (C-corps), IN-111 (individuals), or applicable pass-through return.
~2 hrs
-
5
Apply credit and manage 10-year carryforward
The credit offsets Vermont income tax liability. Unused amounts carry forward up to 10 years — maintain a vintage-year schedule on Form BA-404 and apply oldest credits first. Credits from a given tax year expire 10 years after they were earned if not used.
~1 hrs
Vermont's credit piggybacks directly on your federal Form 6765 — there is no separate Vermont QRE calculation. If you're already claiming the federal §41 credit, the Vermont credit adds 27% of the Vermont-apportioned portion with minimal additional work. Vermont-only companies get 27% of the full federal credit.
Deadline & timing
Claimed on Vermont Form BA-404 (Tax Credits Earned, Applied, Expired, and Carried Forward) filed with the Vermont income tax return. Vermont corporate income tax returns are due April 15 (calendar-year filers) or the 15th day of the 4th month after fiscal year end. Extensions available. The 10-year carryforward gives significant flexibility.
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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.