Every business that qualifies for the R&D Tax Credit hopes to use the full value of that credit in the year it’s earned. In practice, that’s not always possible. A company might not owe enough in tax liability that year to absorb the entire credit, especially in early growth stages, during a slow year, or right after a heavy investment in new development work. Carryforward is the provision that protects that unused value. Instead of the credit expiring the moment it isn’t fully used, carryforward allows a business to apply the remaining balance against tax liability in future years.
At the federal level, this is fairly straightforward. Unused federal R&D credit can generally be carried forward for up to 20 years, giving companies a long runway to eventually capture the full benefit.
Why It Varies So Much by State
State R&D credits are a different story. Many states offer their own version of the R&D credit on top of the federal one, and each state sets its own rules for eligibility, calculation, and how long unused credit can be preserved. Some states allow generous carryforward windows. Some cap it at a handful of years. A few structure their credit as fully refundable, which removes the need for carryforward altogether because the business receives the value regardless of tax liability. And at least one state limits how much of the carried forward balance can be used in any single year, even if the total carryforward period is technically unlimited.
This is one of the more overlooked details in R&D tax planning. A business operating in multiple states, or considering where to expand, can end up leaving real value on the table simply by not accounting for how differently each state treats unused credit. Understanding these differences up front helps a business plan its tax position with more confidence and avoid surprises when a credit doesn’t get used as quickly as expected.
Carryforward by State
Here is a state by state look at carryforward for those states that currently offer an R&D tax credit.
- Alaska: 20 years
- Arizona: 10 years for credits generated after 2021, 15 years for older credits
- Arkansas: 9 years
- California: indefinite, no expiration on unused credit
- Colorado: no fixed year limit, but usable up to 25 percent of the original credit per year
- Connecticut: 15 years
- Delaware: fully refundable, so carryforward generally isn’t needed
- Florida: 5 years
- Georgia: 5 years for credits generated on or after January 1, 2025, 10 years for credit generated before that date
- Hawaii: fully refundable
- Idaho: 14 years
- Illinois: 5 years, with the credit currently scheduled to sunset in 2031
- Indiana: 10 years
- Iowa: carryforward is allowed under its newly overhauled program, though a specific year count hasn’t been clearly published yet
- Kansas: no set expiration, but usable up to 25 percent of the credit per year
- Kentucky: 10 years, and this credit applies specifically to research facility construction
- Louisiana: 5 years
- Maine: 15 years
- Maryland: 7 years
- Massachusetts: 15 years for most unused credit, with a portion tied to a liability cap carrying forward indefinitely
- Michigan: fully refundable under its new 2025 program, so carryforward isn’t a factor
- Minnesota: 15 years
- Missouri: 12 years
- Nebraska: structured as a continuing refundable benefit rather than a traditional carryforward
- New Hampshire: 5 years
- New Jersey: 7 years standard, 15 years for priority industry sectors such as advanced computing and biotechnology
- New Mexico: 3 years
- New York: delivered through a separate incentive program rather than a standard carryforward credit
- North Dakota: 15 years, and one of the few states that also allows a 3 year carryback
- Ohio: 7 years
- Oregon: the general R&D credit expired in 2017, though a narrower credit for the semiconductor industry is currently active
- Pennsylvania: 15 years, and the credit can also be sold or assigned to another Pennsylvania taxpayer
- Rhode Island: 7 years
- South Carolina: 10 years, usable up to 50 percent of remaining state liability per year
- Texas: 20 report periods under its updated franchise tax credit rules
- Utah: 14 years for two components of its credit, with no carryforward on a third, flat rate component
- Vermont: 10 years
- Wisconsin: current guidance reflects 15 years, though a recent law change may extend this further as updated guidance is issued
States Without a State R&D Credit
Alabama, Oklahoma, Washington, Nevada, West Virginia, Mississippi, South Dakota, Wyoming, Montana, Tennessee, North Carolina, and Virginia do not currently offer a state level R&D tax credit.
Next Steps
Because these rules shift from year to year and vary this much by state, the right approach depends heavily on where a business operates and how its tax position looks over time. A free analysis is the most reliable way to understand what a company’s federal and state R&D credit actually looks like, including how much carryforward flexibility applies to its specific situation.
