Virginia Research and Development Expenses Tax Credit

Who qualifies (historical — expired for TY2025+)

No business can generate new credit under this program for tax years beginning on or after January 1, 2025. The eligibility rules below describe how the credit worked while it was active, for context and for taxpayers still claiming a carryover balance.

• Applied to qualified research conducted within Virginia — research expenses for activities outside Virginia did not qualify
• Qualified research had to meet the federal §41 four-part test: technological in nature, aimed at developing or improving a business component, involving genuine technical uncertainty, conducted through a process of experimentation
• Virginia QRE was calculated using federal §41 definitions applied to Virginia-located activities: wages, supplies, and 65% of contract research payments
• Available to C-corporations, S-corporations, partnerships, LLCs, and other pass-through entities — broader eligibility than most state R&D credits
• Pass-through entities could allocate credits to partners, members, or shareholders proportionally (or per written agreement), who then claimed the credit on their individual Virginia returns
• Two calculation methods were available each year — taxpayer elected the more favorable method: (1) volume credit (15–20% on first $300K QRE) or (2) incremental credit (10% of QRE above 50% of three-year average, same annual caps)
• Higher rate (20% volume) applied when research was conducted in cooperation with a Virginia college, university, or other institution of higher education
• Statewide annual cap of $15.77 million (FY2024+) — if total applications exceeded the cap, all qualifying credits were prorated proportionally
• Taxpayers with a carryover balance from an active year may continue to claim it until exhausted; no new September 1 application is possible for TY2025+ activity

What it covered (while active, through TY2024)

How it worked while active (historical — no longer applicable for new claims)

1. 1

   Identify and document Virginia qualified research expenses

   Start from your federal §41 QRE computation and carve out only expenses for research conducted in Virginia. Wages for employees performing or directly supporting research at Virginia locations, Virginia-purchased supplies, and 65% of payments to Virginia-based contract researchers qualify. If researching with a Virginia university, document the formal research agreement — this triggers the 20% rate vs. 15%.

   ~8 hrs

2. 2

   Choose the volume or incremental credit method

   Model both methods: (1) Volume: 15% (or 20% with VA university) × min(Virginia QRE, $300,000). (2) Incremental: 10% × max(Virginia QRE − 50% of prior 3-year average Virginia QRE, 0), capped at $45,000/$60,000. For companies with <3 years of Virginia QRE history, the incremental rate is 5%. The volume credit is simpler and typically better for companies with stable or declining R&D; the incremental credit benefits high-growth R&D spenders. Both are capped at the same $45K/$60K ceiling.

   ~3 hrs

3. 3

   Submit application to Virginia Department of Taxation by September 1

   File the separate application package with the Virginia Department of Taxation. Applications must be received (not postmarked) by September 1. The application requires documentation of Virginia QRE, the elected calculation method, and evidence of any Virginia university partnership. The Department reviews all applications, determines if the aggregate exceeds the $15.77M statewide cap, and issues approval notices specifying the allowed credit amount.

   ~4 hrs

4. 4

   Receive credit approval and claim on Virginia return

   After receiving the Department's credit approval letter, claim the approved credit on your Virginia income tax return (Form 760 for individuals, Form 500 for C-corps, Form 770 for pass-throughs). The credit first offsets any Virginia income tax liability; any excess is refundable — you receive a Virginia tax refund for the amount exceeding your liability.

   ~2 hrs

5. 5

   Pass-through allocation (if applicable)

   If the applicant is a partnership, S-corp, or LLC, compute each partner's/member's/shareholder's share of the credit. Share proportionally by ownership interest unless a written agreement establishes a different allocation. Each individual partner then claims their allocated credit on their Virginia personal income tax return and receives a proportional refund if the credit exceeds their Virginia liability.

   ~3 hrs

Industry & certifications

NAICS codes: 325412, 541714, 541715, 336411, 541511, 541330, 541990, 334516

Deadline & timing — expired

There is no active application window. Virginia's R&D Expenses Tax Credit required a separate application submitted to the Department of Taxation by September 1 following the tax year end — but this only ever applied through TY2024. The final application (for TY2024 expenses) was due September 1, 2025; that was the last year new credit could be earned. The credit does not apply to TY2025 or any later tax year. Businesses with an approved carryover balance from a prior active year continue to claim it on their Virginia return until exhausted, subject to normal carryforward rules — no new application is required or possible for that carryover.

What to claim instead

• Research & Development Tax Credit (Section 41) — still fully available to Virginia businesses; unaffected by the state credit's expiration
• Federal R&D tax credit guide — how the federal credit works and who qualifies
• Best state R&D tax credits for 2026 — see which states still offer an active, stackable state credit
• Virginia small business grants — other Virginia funding that doesn't depend on this expired credit

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