Georgia gives a research and development credit against income tax for qualified research expenses in Georgia above a base that is computed from the company's Georgia gross receipts. Its most useful feature for growing companies is that credit in excess of the income tax limit can, by election, be applied against the company's payroll withholding, which makes it a cash benefit for companies with little Georgia income tax. It is claimed on Form IT-RD and administered by the Department of Revenue.
Overview
| Item | Georgia rule |
|---|---|
| Statute | O.C.G.A. section 48-7-40.12 |
| Rate | 10% of the excess of Georgia qualified research expenses over the base amount |
| Base amount | Georgia gross receipts for the year multiplied by the average ratio of Georgia QREs to Georgia gross receipts for the three preceding years, or 0.300 if lower; the base is 50% of current QREs where there are fewer than three prior years of receipts |
| Limit | 50% of the income tax liability for the year after other credits |
| Payroll withholding | Excess credit may be applied against payroll withholding by election |
| Carryforward | Unused credit can be carried forward for 10 years for credits from taxable years beginning before 1 January 2025, and for 5 years for credits from taxable years beginning on or after that date. |
| Refundable or transferable | No |
| Form | The credit is calculated on Form IT-RD; the election to apply excess credit against withholding is made electronically on Form IT-WH. |
| Administering agency | Georgia Department of Revenue |
Who can claim
The credit is available to business enterprises engaged in manufacturing, warehousing and distribution, processing, telecommunications, tourism, broadcasting or research and development industries. The credit is available only if the business claims and is allowed the federal research credit for the same year.. Retail businesses are generally excluded. Georgia adopts the federal definition of qualified research expenses in section 41, limited to research in Georgia. A business whose credit exceeds the annual limit can elect to apply the excess against its payroll withholding.. No application is required for the credit itself; the withholding election is a separate step..
Rate and calculation
The Georgia base is unlike the federal one: it is driven by the ratio of research spending to Georgia gross receipts. A company whose research intensity is rising, or whose Georgia receipts are small relative to its research, gets a larger excess. The 0.300 cap on the ratio means that for very research-intensive companies the base is at most 30% of Georgia gross receipts.
Illustrative example. Peachtree Instruments, a hypothetical manufacturer, has Georgia QREs of US$800,000 and Georgia gross receipts of US$5,000,000 this year. Its average ratio of QREs to receipts for the three preceding years is 0.10. Its Georgia income tax after other credits is US$60,000, and its annual Georgia payroll withholding is US$400,000.
| Step | Amount |
|---|---|
| Base amount: US$5,000,000 at 0.10 | US$500,000 |
| Excess QREs | US$300,000 |
| Credit at 10% | US$30,000 |
| Limit: 50% of US$60,000 | US$30,000 against income tax |
| Excess for withholding | 0 in this year |
Had the income tax been US$20,000, the limit would be US$10,000, and Peachtree could elect to apply the remaining US$20,000 against its payroll withholding during the following year rather than carrying it forward.
How to claim
- Filter the federal workpapers for research conducted in Georgia and assemble Georgia gross receipts for the current and three preceding years.
- Compute the base amount and the credit on Form IT-RD.
- If the credit will exceed 50% of the income tax, make the withholding election electronically on Form IT-WH.
- File Form IT-RD with the Georgia return and apply the credit; any excess applied to withholding follows the election made on Form IT-WH..
- Carry forward any remaining credit for the period that applies to the year it was earned, and keep the business component records for examination.
Working with the federal claim
The state claim is built from the federal workpapers, not alongside them. Each business component in the Section G schedule carries a location, and the state qualified research expenses are the federal QREs for components, employees and contractors located in Georgia. Two points of difference need their own working. The state base uses state figures, so prior-year Georgia QREs and, where the method needs them, Georgia gross receipts must be kept as a separate series from the federal ones. Where Georgia adopts the Internal Revenue Code as of a fixed date, federal changes after that date, including the section 174 and 174A deduction rules, may not apply for Georgia purposes, and the state deduction for research expenses may differ from the federal one.
Examinations are separate. The Department of Revenue can examine the state credit under its own procedures and limitation period whether or not the IRS examines the federal claim, and it will ask for the same things: the business components, the evidence for each part of the four-part test, the basis of the wage allocations and the location of the work. A single set of records, organised by business component with a location field, answers both.
Common questions
Can we claim the Georgia credit without claiming the federal credit? Yes, where the state computation stands on its own, although the definitions are federal and the workpapers are the same, so claiming one without the other is unusual.
Our researchers work remotely from several states. Which state's QREs are they? Wages are allocated by where the employee performs the research, so remote staff need location records as well as project time records. Work performed outside Georgia is outside the Georgia credit even if the employee is on Georgia payroll.
Can an amended return add the Georgia credit for a past year? Generally yes within the state refund period, which is noted above; elections that the state requires on the original return cannot be added later.
Does a state credit affect the federal payroll tax offset? No. The federal payroll tax election is independent of any state credit, and a qualified small business can use both.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.