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State program

Maryland Research and Development Credit

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  • Partly refundable
  • Pre-approval required

Last reviewed November 2026

At a glance

  • Jurisdiction: Maryland (MD)
  • Credit name: Maryland Research and Development Tax Credit (Md. Code, Tax-General § 10-721; COMAR 03.04.10)
  • Administering agency: The Maryland Department of Commerce certifies credits. The Comptroller of Maryland processes claims on returns.
  • Rate(s) and base: 10% of Maryland qualified R&D expenses above the Maryland Base Amount. The base is the IRC §41(c) base attributable to Maryland: a Maryland fixed-base percentage times average annual gross receipts for the four preceding years. The Maryland fixed-base percentage is the ratio of Maryland QREs to gross receipts in those prior years, with the same ratio computed over the available years for taxpayers with at least one but fewer than four prior years. COMAR 03.04.10 still describes the former 3% basic and 10% growth credits; the basic credit was eliminated by SB 196 (Chapter 114 of 2021), and the statute controls.
  • Refundable? Only for small businesses. A small business is a for-profit corporation, LLC, partnership or sole proprietorship with net book value of assets under $5,000,000 at the beginning or end of the tax year. Its credit is refundable to the extent it exceeds Maryland income tax. For everyone else, the credit is non-refundable.
  • Transferable? No
  • Carryforward: Up to 7 tax years after the year the expenses were incurred
  • Annual cap / proration:
    • $12,000,000 total per year: $3,500,000 reserved for small businesses and $8,500,000 for other applicants. Unused amounts shift between the two pools.
    • $250,000 maximum per applicant.
    • If a pool is oversubscribed, credits in that pool are prorated.
  • Pre-approval / application and deadline: Required. Apply online to Commerce by November 15 of the year after the tax year in which the expenses were incurred. For tax year 2025, the window runs June 1 to November 15, 2026. November 15, 2026 is a Sunday; Commerce says the portal will stay open through Monday, November 16, but advises applicants not to rely on the extra day. Commerce issues certificates by February 15 of the following year.
  • Forms:
    • Commerce online R&D Tax Credit application
    • Commerce tax credit certificate
    • Form 500CR (Business Income Tax Credits), Part K (Part K-I for non-small businesses; Part K-II for certified small businesses, refundable), with a copy of the certificate, filed with the Maryland return. Corporations and individuals both use Form 500CR; pass-through entities complete it with Form 510 or 511 to pass the credit to members.
    • An addition modification equal to the credit is required on the Maryland return
  • Sunset / recent changes: The DECADE Act of 2026 (HB 898 / SB 388, Chapter 352, signed May 12, 2026) extended the credit through tax year 2030. New § 10-721(i) bars Commerce from approving a credit for a taxable year beginning after December 31, 2030. Commerce states the program now runs until January 31, 2031. Before the Act, the credit applied only to tax years beginning before January 1, 2026, and the program was set to end June 30, 2027.

What it is

Maryland's R&D credit is a certified, capped incremental credit. Applicants report their prior-year Maryland QREs to Commerce, which computes and approves credits within the $12 million annual cap and issues certificates. The credit is then claimed on the return. Small businesses can receive the excess over their tax as a refund.

Who can claim it

  • Individuals, corporations and pass-through entities that incur qualified research and development expenses (as defined in IRC §41) for research conducted in Maryland, and that apply to Commerce on time.
  • Pass-through entities apply as the entity. The credit flows to owners.
  • For a refund, the business must meet the small-business test: net book value of assets under $5,000,000 at the beginning or end of the tax year, as shown on its balance sheet.

How it is calculated

  1. Determine Maryland QREs and gross receipts for the tax year and for each of the four preceding tax years.
  2. Compute the Maryland Base Amount under IRC §41(c), substituting Maryland QREs:
    • Maryland fixed-base percentage = Maryland QREs ÷ gross receipts for the prior years. Statutory rules apply for taxpayers with fewer than four prior years.
    • Base = Maryland fixed-base percentage × average annual gross receipts for the four preceding years.
    • The base cannot be less than the §41(c) minimum (50% of current-year QREs).
  3. Tentative credit = 10% × (current-year Maryland QREs − Maryland Base Amount).
  4. Commerce caps each applicant at $250,000 and prorates within the small-business pool ($3.5 million) and the general pool ($8.5 million, plus any unused small-business amount).
  5. The certified credit offsets Maryland income tax. Small businesses are refunded any excess. Others carry the excess forward up to 7 years.

How to claim it

  1. Between June 1 and November 15 of the year after the expense year, submit Commerce's online R&D Tax Credit application with the required QRE detail.
  2. Commerce issues a tax credit certificate by February 15 of the following year.
  3. Claim the certified credit on Form 500CR, Part K. Do this on an amended return for the expense year, or on a return for any of the next 7 years. Attach a copy of the Commerce certificate and make the required addition modification.

Recent changes

  • DECADE Act of 2026 (HB 898 / SB 388, Chapter 352), signed May 12, 2026:
    • extended the R&D credit for tax years 2026 through 2030, replacing the June 30, 2027 termination. New § 10-721(i) bars approval for a taxable year beginning after December 31, 2030; a fiscal-year taxpayer's year beginning in 2030 gets a credit prorated to the part of that year falling in calendar 2030;
    • left the 10% rate, the $250,000 per-applicant limit and the $12 million cap (with the $3.5 million small-business set-aside) unchanged; and
    • required two reports to the General Assembly by December 1, 2026: the Comptroller's on how it tracks credit carryforwards, and Commerce's on whether the refundable small-business credit is underused.
  • Effective date: the Act generally took effect June 1, 2026, but the sections that amend § 10-721 took effect July 1, 2026 and apply to all taxable years beginning after December 31, 2025.

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 Maryland and other locations, how Maryland amounts reconcile to federal Form 6765, the Maryland credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Maryland tax.

  1. Provide the Commerce tax credit certificate and show that the credit claimed does not exceed the certified amount.
  2. Reconcile Maryland QREs on the application to Form 6765 and to payroll and general ledger detail. Show that the research was conducted in Maryland.
  3. Provide Maryland QREs and gross receipts for each prior year used in the Maryland fixed-base percentage and the Maryland Base Amount.
  4. For refunds, provide balance sheets showing net book value of assets under $5,000,000 at the beginning or end of the tax year.
  5. Provide the carryforward schedule and show that no amount is used after the 7-year period.
  6. For pass-through owners, show the allocation of the certified credit to owners.

Common weak spots

  • Missing the November 15 application deadline. Credits cannot be claimed without a certificate.
  • QREs on the application that differ from the return or federal Form 6765.
  • Base computed using the federal fixed-base percentage instead of a Maryland-specific one, or with the wrong gross receipts history.
  • Refund claimed by an entity whose net book value of assets was $5,000,000 or more at both the beginning and end of the year.
  • Expected benefit modeled without the $250,000 limit and pool proration.

Next steps

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.

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