Supercharged Credits for Startups and More

Texas is doing things differently.

For years, the Texas R&D tax credit was a "nice-to-have" for profitable giants, but a "maybe later" for startups. Because it typically only offset taxes owed, companies reinvesting every cent into growth, and therefore showing no profit, couldn't actually feel the benefit.

That just changed.

Starting with Texas’s 2026 report year (calculated using expenses incurred during 2025), eligible Texas businesses can claim a refundable R&D credit. This means if your company qualifies, Texas won't just lower your tax bill; they will send you a check for the difference.

Texas R&D Credit Updates

Most state credits are "non-refundable," meaning they sit on your books as a carryforward until you're profitable enough to use them. Other states, like Pennsylvania or Arizona, offer methods to convert credits into cash, but these often come with capped funding pools and other unattractive requirements.

Texas is doing things differently:

  • No Funding Cap: There is no "first-come, first-served" pool of money. If you qualify for the credit, you receive the calculated amount.
  • Direct Cash: This is a "cash-in-pocket" benefit designed specifically to support pre-revenue and high-growth companies.

  • Increased Rates: The standard credit amount is increasing from 5% to 8.722% of your incremental research expenses.

Texas won't just lower your tax bill; they will send you a check for the difference.

Who Qualifies for the New Texas R&D Credit?

The refundable portion of the credit is specifically targeted at smaller or newer businesses. To be eligible for the refund, your company must meet one of the following criteria:

  • Revenue: Have less than $2.65 million in annualized total revenue.
  • Tax Liability: Owe less than $1,000 in franchise tax (before credits).
  • Veteran-Owned: Be a new veteran-owned business (formed on or after 1/1/22, with all owners being honorably discharged veterans).

Note for 2026: To claim this refund, your company cannot have received a sales tax exemption for the same reporting period.

How Much Is the New Texas R&D Credit Worth?

The credit is calculated based on your Qualified Research Expenses (QREs). The state looks at your current year spend and compares it to 50% of your average spend over the previous three years. You receive 8.722% of that "excess" amount. If your company did not have expenses in a prior year, the credit rate becomes 4.361% of current-year expenses.

Because many startups increase their R&D spending year-over-year, they are often positioned to maximize this "excess" and see a significant cash return.

For companies performing research in conjunction with a Texas institution of higher education, the rate is 10.903%.

How to File for New Texas R&D Credits

Unlike most tax filings, the form for the refundable credit (Form 05-183) is not filed with your typical state or federal return. Because many qualifying companies are too small to file a full Texas franchise tax report, this form is mailed directly to the Texas Comptroller.

  • Required Documents: You must include a copy of Federal Form 6765.
  • Deadline: The filing deadline is November 15th of the report year, giving you significantly more time than the standard tax or annual report deadline.
  • Controlled Groups: If your company is part of a controlled group, you’ll also need to include Form 05-184 (an affiliate list).