September 15 Deadline: Don’t Miss Out on Maryland’s Security Clearance Tax Credit
The Employer Security Clearance Costs (ESCC) Tax Credit is a Maryland State program designed to support businesses by providing financial relief for expenses related to obtaining and maintaining federal security clearances, constructing or renovating Sensitive Compartmented Information Facilities (SCIFs), and leasing space for security-based operations.
A qualified small business that performs security-related contracting could be eligible for income tax credits for the first year of rental payments of a leased space where work is performed. The amount of credit awarded depends on the amount of business expenses and related costs accrued, with a limit of $2 million per business.
Who qualifies for the Maryland ESCC tax credit?
To be eligible for the Maryland ESCC Tax Credit, businesses must have 500 or fewer employees and incur expenses within the state of Maryland. The program is available for costs incurred in the taxable years beginning after December 31, 2022, but before January 1, 2033.
A formal application must be submitted to the Maryland Department of Commerce by September 15 following the tax year in which the expenses were incurred.
What counts as a qualified security clearance administrative expense?
Qualified security clearance administrative expenses are costs that are incurred when employees obtain their federal security clearance. Examples of these administrative expenses could include, but are not limited to:
- Processing federal security clearance application requests
- Maintaining, installing, or upgrading Maryland computer systems that are required for obtaining federal security clearances
- Training Maryland employees to administer the application process
Salaries and wages for employees applying for a security clearance are not an eligible expense. As a reminder, all qualified expenses must be incurred in Maryland.
How much can your business receive?
The amount of credit you receive will depend on what kinds of expenses your business incurs.
- For qualified administrative expenses, you could receive a credit against your income tax of up to $200,000 per year.
- For leasing costs, you may be eligible for a credit of up to $200,000 for the first year of your rental agreement.
- For SCIFs, you may receive a credit against your income tax of 50% of the qualified costs for a single SCIF up to $200,000. For multiple SCIFs, the limit increases to $500,000.
If total credits applied for by all businesses exceed $2 million for the tax year, the credit is prorated.
What you’ll need for your application
Required documents for the ESCC tax credit application may include payroll records, employee compensation statements, and other financial documents demonstrating eligibility for the credit.
Once an application is submitted, the Maryland Department of Commerce will certify the approved credit amount by December 15 of that year. To claim the credit, businesses will need to attach a copy of the certification either to an amended Maryland income tax return for the year in which the qualified expenses were incurred or to any income tax return for any taxable year after the qualified expenses were incurred.
We encourage government contractors with security costs in Maryland to take advantage of this unique tax credit; you can apply here. By doing so, you could invest these savings into innovation and new talent to help grow your business in 2025 and beyond. Please use the form below to contact us to learn more about how to take advantage of this tax credit.
