The Vermont R&D tax credit, explained
Yes, Vermont offers an R&D credit equal to 27% of the federal R&D credit, based on Vermont research spending.
Last verified July 2026 against Vermont Department of Taxes guidance.
The short answer
Does Vermont have an R&D tax credit? Yes. Instead of building its own rate structure, Vermont sets its credit at 27% of the federal Section 41 credit, recalculated using only qualified research expenses that happened in Vermont.
How the Vermont credit works
That means a company first works out what its federal credit would be based on Vermont research activity, then takes 27% of that number as the state credit. The credit is nonrefundable and applies against Vermont corporate income tax.
There is a statewide annual cap of $3 million across all companies claiming the credit. If total claims exceed the cap, amounts can be prorated, so the effective rate could be lower than 27% in a year with heavy demand.
How it stacks with the federal credit
Vermont's credit stacks directly on top of the federal credit, since it is calculated from that same number. Startups under $5 million in revenue can also apply up to $500,000 of the federal credit against payroll taxes each year.
Example: a Burlington clean energy startup with 8 engineers earning an average of $105,000 a year spends about $840,000 on qualified Vermont research wages. At a 7% effective federal rate, that generates a federal credit near $59,000. Vermont's credit would then add roughly $16,000 (27% of $59,000), assuming the statewide cap is not exceeded that year.
Because the state credit rides on top of the federal calculation, getting the federal study right matters even more in Vermont than in states with an independent rate. A clean, well-documented federal Form 6765 package directly sets the size of both credits.
Takes about 60 seconds. No signup.
Eligibility and how to claim it
Any company performing qualified research in Vermont, using the federal Section 41 definition, can claim the credit against Vermont corporate income tax.
The credit is claimed on Schedule BA-404, filed with the corporate return (Form CO-411), along with a copy of federal Form 6765 and a recalculation limited to Vermont research expenses. The Vermont Department of Taxes administers it.
Claimship prepares the federal study that this recalculation depends on. The company's CPA files the Vermont return and applies the credit there.
Official source: Vermont Department of Taxes.
Carryforward and deadlines
Unused Vermont credit carries forward for up to 10 years. There is no separate application or pre-certification step beyond filing Schedule BA-404 with the annual return.
Because of the $3 million statewide annual cap, companies claiming a large credit in a given year should file promptly and keep documentation ready, since late or incomplete claims risk losing out if the cap is reached.