Short answer. You can claim both. New Jersey runs its own credit, 10 percent of your New Jersey research over a base plus 10 percent of basic research payments, that follows the federal Section 41 method, so the same in-state work earns both. The credit is not refundable, but a small technology or biotechnology company can sell unused credits for cash through a state program, and unused credit otherwise carries forward seven years.
Key facts
| Claim both? | Yes; New Jersey even ties its rules to the federal credit |
|---|---|
| Federal rate | 20% regular / 14% ASC |
| New Jersey rate | 10% over a base + 10% of basic research payments |
| New Jersey refundable? | No, but small tech and biotech can sell unused credits for cash |
| Forms | Form 6765 (federal) + Form 306 (New Jersey) |
Two credits on the same research
New Jersey computes its own credit on New Jersey expenses, closely tied to the federal method.
The federal Section 41 credit is claimed on Form 6765 with your federal return. New Jersey's credit is claimed on Form 306 with the Corporation Business Tax return, and the same research performed in New Jersey can support both in the same year.
For tax years from 2018, New Jersey follows the current federal Section 41 rules and requires you to use the same method, regular or simplified, that you used federally, so the federal work flows directly into the state claim.
Federal Section 41 vs. New Jersey, factor by factor
New Jersey is not refundable, but small technology companies can sell unused credits for cash.
| Factor | Federal Section 41 | New Jersey |
|---|---|---|
| What it is | Credit for increasing research activities | New Jersey research and development credit |
| Credit rate | 20% regular / 14% ASC | 10% of the excess over a base, plus 10% of basic research payments |
| Refundable | No - a QSB may offset up to $500,000 of payroll tax under Section 41(h) | No, but a small tech or biotech company can sell unused credits for cash through the NJEDA program |
| Carryforward | 20 years, with a 1-year carryback | 7 years (15 years for certain technology fields), no carryback |
| Where research must occur | United States | New Jersey only |
| How you claim it | Form 6765 with the federal return | Form 306 with the Corporation Business Tax return |
| Claim alongside the other? | Yes, on the same underlying QRE | Yes; New Jersey uses the same method you elect federally |
| Documentation | Four-part test and QRE substantiation (Treas. Reg. 1.41-4) | Follows the current Section 41 rules, New Jersey research only |
Where New Jersey differs from federal
Two features set New Jersey apart from the federal credit.
Sell the credit for cash. The New Jersey credit is not refundable, but an approved small technology or biotechnology company can sell unused research credits and net operating losses to a profitable company for cash through the state Technology Business Tax Certificate Transfer program. The federal credit cannot be sold, though a qualified small business can offset up to $500,000 of payroll tax under Section 41(h).
Tied to the federal credit. New Jersey is a Corporation Business Tax credit that follows the current federal Section 41 rules. Only research conducted in New Jersey counts, and unused credit carries forward seven years, or 15 years for advanced technology fields.
One evidence base for both
The records that prove the federal claim are what New Jersey relies on too.
Because New Jersey follows the federal Section 41 rules and method, the four-part test analysis and the wage, contractor, and supply records that substantiate your federal credit under Treas. Reg. 1.41-4 are the same records New Jersey relies on, limited to the in-state share.
R&D Binder documents the federal Section 41 four-part test that both credits stand on, with New Jersey handled as a state add-on from the same evidence. Whether your facts qualify, and which credits to claim, is a determination for your CPA.
More on New Jersey's R&D credit
The full state overview, the federal Section 41 work it builds on, and related state guides:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- New Jersey Technical Bulletin TB-114, The New Jersey Research and Development Tax Credit (N.J.S.A. 54:10A-5.24) - New Jersey Division of Taxation
- New Jersey Form 306, Research and Development Tax Credit - New Jersey Division of Taxation
- NJEDA Technology Business Tax Certificate Transfer (NOL) Program - New Jersey Economic Development Authority
- 26 U.S.C. § 41 (credit for increasing research activities) - Cornell Law School, Legal Information Institute
- IRS, About Form 6765 - Internal Revenue Service
- Treas. Reg. § 1.41-4 (recordkeeping and substantiation of qualified research) - Cornell Law School, Legal Information Institute
Get documentation built to survive an exam
R&D Binder produces the federal Section 41 binder and the New Jersey state workpaper from one engagement, both built to survive an exam.