The California R&D Tax Credit


March 7, 2023


California likes to do things a bit differently, so it’s fitting the state has its own unique version of the R&D Tax Credit. While the California R&D Tax Credit is based on the federal version, it comes with a few modifications. 

The first major difference is that you must be conducting the qualifying research and basic research activities in California in order to claim the credit.  Basic research can mean any type of research that has a specific commercial objective. 

A few other differences for the Golden State:

  • California does not limit the expense amount that can qualify for the tax credit
  • Unused California research credits can be indefinitely carried forward (compared to federal credits which can be carried back one year and forward 20 years)
  • There is no Alternative Simplified Credit option in California
  • California still allows for the Alternative Incremental Research Credit

The credit is equal to the sum of the following:

  • 15% of qualified expenses that exceed a base amount (compared to the 20% federal credit rate)
  • 24% of basic research payments

And finally, in order to claim the credit, California requires you to fill out a special form, FTB 3523. 

Rebate knows the ins and outs of tax credits and we understand the modifications to the California Tax Credit and most importantly, how it relates to your business.  We combine technology with our expert network of accountants who specialize in tax credits. 

If you’re unsure of how to start your claim or if you qualify for federal or California credits, contact us, or start a free evaluation.