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State program

Pennsylvania Research and Development Credit

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  • Offset only
  • Pre-approval required
  • Transferable

Last reviewed November 2026

At a glance

  • Jurisdiction: Pennsylvania (PA)
  • Credit name: Research and Development (R&D) Tax Credit (Tax Reform Code of 1971, Article XVII-B)
  • Administering agency: The Pennsylvania Department of Revenue reviews applications and awards credits. The Department of Community and Economic Development (DCED) approves sales and assignments of credits.
  • Rate(s) and base: 10% of the increase in Pennsylvania qualified research expenses over the Pennsylvania base amount. The base amount follows the federal regular-credit base in IRC §41(c), using Pennsylvania figures: a fixed-base percentage (Pennsylvania QREs divided by Pennsylvania gross receipts for the four preceding tax years, or fewer if the taxpayer has fewer years) multiplied by average Pennsylvania gross receipts for the four preceding years. Small businesses get 20%. A small business is one with a net book value of assets under $5 million at the beginning or end of the tax year.
  • Refundable? No.
  • Transferable? Yes, with DCED approval. Only the portion that exceeds the holder's own tax liability can be sold. S corporations cannot sell credits that passed through to shareholders. Buyers must use the credit in the year of purchase, against no more than 75% of their liability, and cannot carry it forward or back, get a refund for it, or resell it.
  • Carryforward: 15 taxable years. No carryback.
  • Annual cap / proration: $60 million per fiscal year (since FY 2022-23), including a $12 million set-aside for small businesses. If requests exceed the cap, awards are prorated.
    • In the 2026 award round (2025 applications): 665 applicants requested $168.1 million and received $60 million in total.
    • Small businesses received 100% of their tentative credit ($7.3 million). Other businesses received 32.8%.
  • Pre-approval / application and deadline: Required. File an application through myPATH, open August 1 through December 1. It covers QREs from the tax year ending in the prior calendar year. The Department notifies awardees by May 1 of the following year.
  • Forms:
    • Application through myPATH, with federal Form 6765 and supporting schedules. Small businesses also submit a balance sheet.
    • Awarded credits are claimed on the corporate tax report (RCT-101) or on Schedule OC for PA-40, PA-20S/PA-65 and PA-41 filers.
  • Sunset / recent changes: The statutory sunset has been repealed. No 2025–2026 legislation changed the credit. The cap has been $60 million since Act 53 of 2022. SB 792, which would double the cap and change the rates and base, is pending in the Senate Appropriations Committee.

What it is

Pennsylvania's R&D credit is a competitively awarded, nonrefundable credit against Pennsylvania corporate net income tax, personal income tax and certain other taxes. Businesses must apply each year. Because requests far exceed the cap, larger businesses usually receive only a fraction of what they request. Businesses that cannot use their credit can sell it with DCED approval.

Who can claim it

  • Businesses and individuals subject to Pennsylvania corporate net income tax or personal income tax with qualified research expenses (as defined in IRC §41(b)) for research done in Pennsylvania that file a timely application. The Department's program page also requires at least two years of research expenditures.
  • The applicant must pass tax-clearance checks. Taxpayers found noncompliant are not eligible until they resolve the issue. On May 1, 2026, 11.8% of applicants were found noncompliant.
  • Credits awarded to pass-through entities flow through to owners.

How it is calculated

  1. Determine Pennsylvania QREs for the tax year.
  2. Subtract the Pennsylvania base amount: the fixed-base percentage (Pennsylvania QREs over Pennsylvania gross receipts for the four preceding tax years) times average Pennsylvania gross receipts for those years, computed under IRC §41(c) with Pennsylvania figures.
  3. Multiply the excess by 10%, or 20% for small businesses. This gives the tentative credit.
  4. The Department prorates tentative credits to fit the $60 million cap. Small businesses draw first from the $12 million set-aside.
  5. Use the awarded credit against Pennsylvania tax. Carry any unused amount forward up to 15 years, or apply to DCED to sell it.

How to claim it

  1. Apply between August 1 and December 1 through myPATH. Include:
    • Pennsylvania and federal QRE schedules
    • federal Form 6765
    • subcontractor information
    • a balance sheet if you claim the small-business rate
  2. Receive the award notice. Notices go out by May 1.
  3. Claim the credit on the RCT-101 or on Schedule OC with the personal, S corporation, partnership or fiduciary return.
  4. To sell:
    • file a sale or assignment application with DCED identifying the seller, buyer, credit amount and price
    • after approval, the buyer claims the credit in the year of purchase
    • brokers must be registered
    • the seller must be tax-compliant before DCED approves the sale; the sale is a taxable transaction for income tax purposes and the Department reports it to the IRS

Recent changes

  • Act 25 of 2021:
    • moved the application deadline to December 1
    • created an appeals process
    • authorized CPA-procedure requirements and recapture
    • required brokers to register
  • Act 53 of 2022: raised the cap from $55 million to $60 million and the small-business set-aside to $12 million, starting in FY 2022-23.
  • 2024–2026: no statutory changes to the credit. The Department's 2026 report (on 2025 applications) recommends reforms, including shortening the 15-year carryforward to 5 years. PICPA testified on May 7, 2026 in favor of reforms such as a federal-style three-year base.
  • SB 792 (2025-26 session, pending): as amended (PN 1803), it would raise the cap to $120 million with a $24 million small-business set-aside, raise the small-business asset threshold to $10 million, raise the rates to 14% (25% for small businesses), and replace the base with 50% of the average QREs for the three preceding years (6% of current QREs if any of those years had none). The Senate Institutional Sustainability and Innovation Committee reported it on June 9, 2026, and it was re-referred to Appropriations on June 22, 2026. It has not passed the Senate.
  • HB 1004 (2025-26 session): would raise the cap. It has been in the House Finance Committee since March 24, 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 Pennsylvania and other locations, how Pennsylvania amounts reconcile to federal Form 6765, the Pennsylvania credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Pennsylvania tax.

  • How were Pennsylvania QREs separated from out-of-state QREs?
  • What were your Pennsylvania QREs and Pennsylvania gross receipts for each of the prior four years, and how are they documented?
  • For the 20% rate: what was the net book value of assets at the beginning or end of the year?
  • Do QREs tie to federal Form 6765?
  • How were subcontractor costs identified, and was the work performed in Pennsylvania?
  • For sold credits: can you provide the DCED approval, and does the amount sold exceed your own liability?
  • For purchased credits: was the credit used in the purchase year and within 75% of liability?

Common weak spots

  • Missing the December 1 application deadline. Late applications are not accepted.
  • Weak documentation of prior-year Pennsylvania QREs and Pennsylvania gross receipts for the base calculation.
  • Small-business status claimed without a supporting balance sheet, or with assets measured at the wrong date.
  • Being found tax-noncompliant at award time.
  • Selling credits without DCED approval, or an S corporation selling credits that passed through to shareholders.

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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