Short answer. You can claim both. South Carolina runs its own credit equal to 5 percent of your total South Carolina research, not just the increase over a base, separate from the federal Section 41 credit, so the same in-state work earns both. The credit is nonrefundable, limited to half your tax each year, and carries forward 10 years.
Key facts
| Claim both? | Yes; claiming the federal credit is required |
|---|---|
| Federal rate | 20% regular / 14% ASC |
| South Carolina rate | 5% of total South Carolina research (no base subtraction) |
| South Carolina refundable? | No (limited to 50% of tax per year) |
| Forms | Form 6765 (federal) + Schedule TC-18 (South Carolina) |
Two credits on the same research
South Carolina computes its own credit on South Carolina expenses; the federal credit runs on your nationwide expenses.
The federal Section 41 credit is claimed on Form 6765 with your federal return. South Carolina's credit is claimed on Schedule TC-18 with the state return, and the same research performed in South Carolina can support both in the same year.
South Carolina uses the federal Section 41(b) definition of qualified research expenses and requires you to claim the federal credit, then applies 5 percent to your in-state research.
Federal Section 41 vs. South Carolina, factor by factor
South Carolina applies a flat 5 percent to all in-state research, with a 50 percent annual usage limit.
| Factor | Federal Section 41 | South Carolina |
|---|---|---|
| What it is | Credit for increasing research activities | South Carolina research expenses credit |
| Credit rate | 20% regular / 14% ASC | 5% of total South Carolina QRE (not an increase over a base) |
| Refundable | No - a QSB may offset up to $500,000 of payroll tax under Section 41(h) | No, and limited to 50% of tax due each year |
| Carryforward | 20 years, with a 1-year carryback | 10 years, no carryback |
| Where research must occur | United States | South Carolina only |
| How you claim it | Form 6765 with the federal return | Schedule TC-18 with the South Carolina return |
| Claim alongside the other? | Yes, on the same underlying QRE | Yes; claiming the federal credit is required |
| Documentation | Four-part test and QRE substantiation (Treas. Reg. 1.41-4) | Uses the Section 41(b) definition, South Carolina research only |
Where South Carolina differs from federal
Two differences matter most when you claim both.
A rate on all of your research, not just the growth. Most credits, including the federal one, apply to the increase over a base. South Carolina applies its 5 percent rate to your total South Carolina research expenses, which can be simpler and broader, though the rate is lower.
Half your tax a year, nonrefundable. The South Carolina credit can offset at most 50 percent of your tax in any year and is not refundable, with unused amounts carrying forward 10 years. Claiming the federal Section 41 credit for the same year is a condition of the state credit.
One evidence base for both
The records that prove the federal claim are what South Carolina relies on too.
Because South Carolina uses the federal Section 41(b) definition and requires you to claim the federal credit, 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 South Carolina 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 South Carolina 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 South Carolina'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.
- South Carolina Code 12-6-3415 (research expenses credit) - South Carolina General Assembly
- South Carolina Schedule TC-18, Research Expenses Credit - South Carolina Department of Revenue
- 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 South Carolina state workpaper from one engagement, both built to survive an exam.