Connecticut Research and Development Credit

2026 change: Public Act 26-68, § 267 (signed May 26, 2026) creates a new 6% R&D credit against the Connecticut personal income tax for pass-through businesses (S corporations, partnerships and single-member LLCs) with gross income of no more than $70 million, for taxable years beginning on or after January 1, 2026. It is administered by the Department of Economic and Community Development (DECD) under a $25 million annual cap.

At a glance

Jurisdiction: Connecticut (CT)
Credit name: (1) Research and Development Expenditures Credit (non-incremental), Conn. Gen. Stat. § 12-217n; (2) Research and Experimental Expenditures Credit (incremental), § 12-217j; (3) new pass-through R&D income tax credit, P.A. 26-68, § 267 (2026 and later).
Administering agency: Department of Revenue Services (DRS) for the corporation business tax credits and the credit exchange; DECD for the new pass-through credit (reservations and vouchers), with exchanges filed with DRS.
Rate(s) and base: § 12-217n: graduated 1% (first $50 million of Connecticut R&D expenses) rising to 6% (over $200 million), or a flat 6% for qualified small businesses with prior-year gross income of $100 million or less. § 12-217j: 20% of Connecticut R&E expenditures above the prior year's amount. Pass-through credit: 6% of eligible Connecticut R&D expenditures.
Refundable? Partly, through the credit exchange. Qualified small businesses (prior-year gross income of $70 million or less) that cannot use the credit may exchange it for 65% of its value (90% for qualified small biotechnology companies from 2025), up to $1.5 million per income year. Pass-through credit: excess over income tax may be exchanged for 65% (90% for biotechnology businesses).
Transferable? No (other than the exchange with the state).
Carryforward: 15 years for both corporation business tax credits from income years beginning on or after January 1, 2021. § 12-217n credits from earlier years carry forward until used. No carryback.
Annual cap / proration: § 12-217n allowable credit each year is limited to the lesser of one-third of the credit, or the greater of 50% of tax or the lesser of 200% of the credit or 90% of tax. R&D credits may offset up to 70% of corporation business tax (versus the general 50.01% credit cap). Exchange refunds capped at $1.5 million per income year. Pass-through credit: up to $1.5 million reserved per business per year; $25 million aggregate per year.
Pre-approval / application and deadline: Corporation business tax credits: none. Exchange: Form CT-1120 XCH filed with the return by its original or extended due date (late applications not accepted). Pass-through credit: apply to DECD for a reservation (DECD may reserve a credit if the business is likely to incur eligible expenditures), then verify expenditures within 90 days after the taxable year closes to receive a voucher. For calendar-year 2026 businesses, the verification deadline is March 31, 2027.
Forms: CT-1120 RDC (§ 12-217n), CT-1120RC (§ 12-217j), CT-1120K (Business Tax Credit Summary), CT-1120 XCH (exchange). Pass-through credit: reservations and vouchers are handled by DECD; DRS has stated that it will issue more detailed guidance on the 2026 legislation. In the meantime, businesses should track eligible 2026 Connecticut expenditures so they can verify them with DECD within 90 days after the 2026 taxable year closes.
Sunset / recent changes: No sunset. P.A. 25-168 (2025) raised the biotech exchange rate to 90%. P.A. 26-68 (2026) added the pass-through credit. 2026 legislation also delayed Connecticut's conformity to federal § 174A by one year.

What it is

Connecticut offers two corporation business tax credits for research performed in Connecticut: a non-incremental credit on total R&D spending and an incremental credit on year-over-year growth. Small corporations that cannot use their credits can exchange them with the state for cash. Starting in 2026, a separate DECD-administered credit extends a 6% benefit to pass-through businesses against the personal income tax.

Who can claim it

Corporation business tax credits: Companies subject to the corporation business tax with Connecticut R&D expenditures. 2025 legislation added a "taxpayer" definition that widens the types of entities that can earn these credits, for income years beginning on or after January 1, 2025.
Exchange: Qualified small businesses with prior-year gross income of $70 million or less that have zero or negative apportioned net income, or pay only the $250 minimum capital base tax. Combined filers follow group rules.
Pass-through credit: S corporations, entities treated as partnerships, and disregarded single-member LLCs with gross income of no more than $70 million in their most recent taxable year (including related-party income), for research conducted in Connecticut that is not funded by a grant or contract.

How it is calculated

§ 12-217n: Apply the graduated rate (1% to $50 million; $500,000 + 2% to $100 million; $1,500,000 + 4% to $200 million; $5,500,000 + 6% above $200 million) or the 6% qualified small business rate to Connecticut R&D expenses. Taxpayers claiming the § 12-217j credit reduce their § 12-217n expenses by the incremental increase. Taxpayers with more than $200 million in R&D expenses may lose part of the credit if their Connecticut wage base falls more than 2%.
§ 12-217j: 20% of the excess of current-year Connecticut R&E expenditures over the prior year.
Exchange: 65% (or 90% for qualified small biotechnology companies) of the unused credit, up to $1.5 million.
Pass-through credit: 6% of federally deductible R&D expenses and qualifying basic research payments eligible for the federal research credit, for research in Connecticut. Must be claimed before other income tax credits.

How to claim it

Corporations: complete CT-1120 RDC and/or CT-1120RC and carry the credits to CT-1120K. CT-1120 RDC must include project descriptions, expense methods, source documentation, and employee job titles and descriptions.
Exchange: file CT-1120 XCH with the return on or before its original or extended due date.
Pass-through credit: apply to DECD for a credit reservation (up to $1.5 million), verify actual expenditures with DECD within 90 days after the taxable year closes, receive a voucher, and claim it with the income tax return. Any exchange claim is filed with that return.

Recent changes

P.A. 25-168 (HB 7287), signed June 30, 2025, effective July 1, 2025: For income years beginning on or after January 1, 2025, qualified small biotechnology companies may exchange unused §§ 12-217n and 12-217j credits for 90% of their value (other qualified small businesses remain at 65%). 2025 legislation also added a "taxpayer" definition to §§ 12-217n and 12-217j, widening eligible entity types for income years beginning on or after January 1, 2025.
P.A. 26-68, § 267, signed May 26, 2026: New 6% pass-through R&D income tax credit for taxable years beginning on or after January 1, 2026, with $1.5 million per-business and $25 million aggregate limits and a 65%/90% exchange.
2026 § 174 conformity (corporation business tax): For income years beginning on or after January 1, 2022 and before January 1, 2026, Connecticut follows § 174 as in effect on July 3, 2025 (delaying § 174A conformity by one year) and disallows the retroactive small business § 174A deduction. DRS may waive interest and penalties on resulting additional tax paid by November 15, 2026 or the return due date.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Connecticut and other locations, how Connecticut amounts reconcile to federal Form 6765, the Connecticut credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Connecticut tax.

Provide project descriptions, expense computation methods, and employee titles and job descriptions supporting CT-1120 RDC.
Show that all expenditures were for research performed in Connecticut.
Provide prior-year Connecticut R&E expenditures for the § 12-217j computation, and show the reduction of § 12-217n expenses for the incremental increase.
For an exchange, provide prior-year gross income (including related parties), the net income or capital base tax position, and proof CT-1120 XCH was filed by the due date.
For a biotechnology exchange at 90%, show the company meets the § 12-217j biotechnology definition.
Provide the carryforward schedule by income year (15-year limit for 2021 and later).
For the pass-through credit, provide the DECD reservation, the 90-day verification and the voucher.

Common weak spots

Exchange application filed late (DRS does not accept late CT-1120 XCH filings).
Gross income tests confused: $100 million for the 6% rate, $70 million for the exchange.
One-third annual limit and 70% liability cap not modeled.
§ 12-217n expenses not reduced when the § 12-217j credit is also claimed.
Pass-through businesses missing the DECD reservation or 90-day verification.
Out-of-state or grant-funded research included.

Next steps

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Important

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