Massachusetts Research and Development Credit

At a glance

• Jurisdiction: Massachusetts (MA)
• Credit name: Massachusetts Research Credit (M.G.L. c. 63, § 38M; 830 CMR 63.38M.1)
• Administering agency: Massachusetts Department of Revenue (DOR). The refundable option requires authorization from the Massachusetts Life Sciences Center (life sciences tax incentive program, M.G.L. c. 23I) or the Massachusetts Clean Energy Center (climatetech tax incentive program, M.G.L. c. 23J).
• Rate(s) and base: Two methods:
  • Regular method: 10% of Massachusetts QREs above the base amount, plus 15% of basic research payments above the base. The base is the greater of 50% of current-year QREs or a fixed-base percentage (maximum 16%) times average annual gross receipts for the four preceding years. Definitions follow IRC §41 as in effect on August 12, 1991.
  • Alternative simplified method (by election): 10% of Massachusetts QREs above 50% of the average QREs for the three preceding years (rate since tax years beginning 2021; 5% for 2015–2017 and 7.5% for 2018–2020). If there were no QREs in any of those three years, 5% of current-year QREs.
• Refundable? Generally no. Companies certified under the life sciences tax incentive program or the climatetech tax incentive program may elect to receive 90% of the credit balance above the allowable amount as a refund, to the extent the certifying agency authorizes. Refunded amounts are not carried forward.
• Transferable? No
• Carryforward: 15 years. Credit disallowed by the 75% excise limitation carries forward indefinitely.
• Annual cap / proration: No program cap for the standard credit. The annual limit is 100% of the first $25,000 of excise plus 75% of excise above $25,000, and the credit cannot reduce excise below the $456 minimum. Refunds for certified companies are limited by their certifying agency's authorization.
• Pre-approval / application and deadline: None for the standard credit, which is claimed on the excise return. A refund requires life sciences or climatetech certification and authorization in advance.
• Forms: Schedule RC (Research Credit), with Schedule CMS (Credit Manager Summary), filed with Form 355, 355S or 355U
• Sunset / recent changes: No sunset.
  • Mass Leads Act (Chapter 238 of the Acts of 2024) added climatetech companies to the 90% refund option.
  • Chapter 101 of the Acts of 2026 (H. 5470) decoupled Massachusetts from federal §174A expensing for tax year 2025 only.

What it is

Massachusetts offers an incremental research credit against the corporate excise. It follows IRC §41 definitions, limited to research conducted in Massachusetts, and is one of the larger state research credits. Taxpayers can choose a regular method that includes a basic research component, or an alternative simplified method. For most taxpayers the credit is non-refundable. Certified life sciences and climatetech companies can elect to have 90% of the excess refunded within their authorized award.

Who can claim it

• Business corporations subject to the Massachusetts corporate excise under chapter 63, with QREs for research conducted in Massachusetts.
• Financial institutions are eligible, following State Street Corp. v. Commissioner (Appellate Tax Board, August 15, 2024) and DOR TIR 25-3.
• S corporations may use the credit against their own excise, but cannot pass excess credit to shareholders.
• Refund election: available only to companies certified under the life sciences or climatetech tax incentive programs, and only to the extent authorized.

How it is calculated

Regular method (§ 38M(a))

• Credit = 10% × (Massachusetts QREs − base amount) + 15% × (basic research payments − basic research base).
• Base amount = the greater of:
  • the fixed-base percentage (maximum 16%) × average annual Massachusetts receipts; or
  • 50% of current-year QREs.
• Taxpayers with zero gross receipts in the relevant years must use the alternative simplified method.

Alternative simplified method (§ 38M(b))

• Credit = 10% × (Massachusetts QREs − 50% of the average Massachusetts QREs for the three prior years).
• If there were no QREs in any of those three years: 5% of current-year QREs.

Usage limit: 100% of the first $25,000 of excise plus 75% of the excess, applied at the affiliated-group level where relevant. The credit cannot reduce excise below the $456 minimum.

How to claim it

1. Complete Schedule RC and choose the method. Attach it, with Schedule CMS, to Form 355, 355S or 355U.
2. Track carryforwards by year: 15 years for ordinary unused credit, indefinitely for credit disallowed by the 75% limitation.
3. Refund election (certified companies only):
   • Obtain certification and authorization from the Massachusetts Life Sciences Center or the Massachusetts Clean Energy Center.
   • Elect the refund on the return.
   • The refund is 90% of the excess credit and cannot exceed the authorized amount.

Recent changes

• Chapter 101 of the Acts of 2026 (H. 5470, supplemental budget), signed June 12, 2026; DOR explained it in TIR 26-4 (June 23, 2026):
  • For tax years beginning on or after January 1, 2025, Massachusetts disallows federal §174A expensing of domestic research expenditures. For tax year 2025, those costs must be amortized under §174 as in effect on July 3, 2025.
  • It also disallows the federal retroactive small-business election and the accelerated deduction of unamortized 2022–2024 costs.
  • The disallowance is repealed for tax years beginning on or after January 1, 2026, so Massachusetts conforms to §174A from 2026.
  • The research credit itself is unchanged, but Massachusetts and federal research-expense deductions now need separate tracking.
• Pending (fall 2026): the closeout supplemental budget the Governor filed on September 23, 2026 contains further amendments to the c. 63, § 1 definition of the Code that address §174A. As of late October 2026 the closeout budget was still before the Legislature (the House had passed its version, H. 5700, and the Senate had scheduled debate on its version, S. 3290), and no change to § 38M had been proposed.
• TIR 25-5 (June 5, 2025): explained that Chapter 238 of the Acts of 2024 expanded "defense-related activities" in § 38M(j) to include certain medical countermeasures, for expenses incurred on or after November 20, 2024.
• TIR 25-3 (May 9, 2025): confirmed that financial institutions are eligible.
• Mass Leads Act (Chapter 238 of the Acts of 2024, signed November 20, 2024): extended the 90% refund option in § 38M(k) to certified climatetech companies.

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

1. Provide Schedule RC and the method elected, and reconcile Massachusetts QREs to federal Form 6765.
2. Show that the research was conducted in Massachusetts. Explain how wages, supplies and contract research were sourced to Massachusetts.
3. Regular method: provide the fixed-base percentage computation and the gross receipts history. ASC: provide Massachusetts QREs for the three prior years.
4. For basic research payments, provide the written agreements with qualified organizations and show the research was performed in Massachusetts.
5. Show how the $25,000 / 75% limitation and the minimum excise were applied, and provide the carryforward schedule separating 15-year credits from indefinite ones.
6. For refunds, provide the life sciences or climatetech certification and authorization, and show that the refund was 90% of the excess and within the authorized amount.
7. For combined groups, show which member generated the credit and how it was shared.

Common weak spots

• Annual excise limitation or minimum excise not modeled, so the expected benefit is overstated.
• Carryforwards not split between 15-year and indefinite balances.
• Refund elected without certification, or above the authorized amount.
• S corporation credit passed through to shareholders (not allowed).
• Non-Massachusetts research included in QREs.
• For 2025, the federal §174A deduction used for Massachusetts without the required addback.

Next steps

• Run a mock audit for Massachusetts
• Official source: Massachusetts Department of Revenue, research credit (opens in a new tab)
• Run the eligibility checker
• Book a scoping call with Swanson Reed (opens Swanson Reed's booking calendar in a new tab)
• Contact us: +1 (469) 206-4335 or hello@creditarmor.ai

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.