Employer Security Clearance Costs Tax Credit (ESCC)
About this page. This page explains the Employer Security Clearance Costs Tax Credit in plain language. The credit is authorized under Maryland Tax-General Article §10-732, as amended by Senate Bill 721 (Chapter 438, 2023) - PDF, with program regulations - PDF - 34.39 KB. If anything on this page conflicts with the statute or regulations, the statute and regulations control.
Program Status
The program is currently closed.
The Tax Year 2025 application period opened May 1, 2026 and closed September 15, 2026. Applications are submitted online.
Sunset: The credit is available for eligible expenses and costs for taxable years beginning after December 31, 2022 but before January 1, 2033 — in effect, tax years 2023 through 2032
What This Program Does
The ESCC Tax Credit provides Maryland income tax credits for three kinds of costs related to federal security clearance work:
- Security clearance administrative expenses — the cost of obtaining and maintaining federal security clearances for Maryland employees
- Sensitive Compartmented Information Facility (SCIF) costs — construction or renovation of an accredited SCIF in Maryland
- First-year leasing costs — rent paid during the first year of a lease for space used to perform security-based contracting work (small businesses only)
The program supports Maryland businesses performing security-based contract work for federal agencies.
Who This Is For
This credit is for Maryland businesses that:
- incur qualified federal security clearance administrative expenses, construct or renovate a SCIF in Maryland, or lease Maryland space for security-based contracting work
- employ 500 or fewer employees
- apply to and are certified by Commerce
Important. Companies that employ more than 500 employees are not eligible for the ESCC tax credit.
The first-year leasing costs credit is further limited to qualified small businesses (see Definitions).
Definitions
Qualified small business. Defined by Tax-General Article §7-218 and referenced in §10-732(a)(5). A small business must meet all four conditions: (1) independently owned and operated; (2) not a subsidiary of another firm; (3) not dominant in its field of operation; and (4) did not employ more than 25 individuals in its most recently completed fiscal year.
Sensitive Compartmented Information (SCI). Classified intelligence information concerning or derived from sensitive sources, methods, or analytical processes, which must be handled exclusively within a formal access control system established by the Director of National Intelligence.
Sensitive Compartmented Information Facility (SCIF). An area, room, group of rooms, or installation accredited by the proper authority to store, use, host discussions of, or process SCI. The SCIF must be certified by the Assistant Deputy Director of National Intelligence for Security or by the sponsoring federal agency.
Qualified security clearance administrative expenses. Administrative costs of obtaining and maintaining federal security clearances for Maryland employees — including processing clearance application requests, maintaining or upgrading Maryland computer systems required to obtain clearances, and training employees to administer the application process.
Program Duration and Limits
Credit amounts
Credit | Maximum | Who can claim it |
|---|---|---|
| Security clearance administrative expense | $200,000 per taxable year | Any eligible business |
SCIF costs — single facility | Lesser of 50% of costs or $200,000 | Any eligible business |
SCIF costs — multiple facilities | Up to $500,000 per calendar year | Any eligible business |
| First-year leasing costs | $200,000 | Qualified small businesses only |
A business may apply for multiple credits in the same year. For example, a qualified small business with $200,000 in administrative expenses, $200,000 in first-year leasing costs, and $500,000 in multiple-SCIF costs may apply for a total of $900,000.
Annual program cap and proration
Total ESCC credits approved by Commerce may not exceed $2 million in any calendar year. If applications from all businesses exceed $2 million, each business receives its pro-rata share.
Example. A business applies for $250,000. Total applications from all businesses come to $4 million. The business receives $250,000 × ($2 million ÷ $4 million) = $125,000.
Carryforward
If the credit exceeds the business’s Maryland income tax for the year, the excess may be carried forward until fully used. There is no fixed carryforward limit.
Sunset
The credit applies to taxable years beginning after December 31, 2022 but before January 1, 2033.
How the Program Works
1. Security Clearance Administrative Expenses Credit
Up to $200,000 per taxable year for administrative expenses of obtaining and maintaining federal security clearances for employees.
Qualified expenses include:
- Processing application requests for federal security clearance for Maryland employees
- Maintaining, upgrading, or installing computer systems in Maryland required to obtain federal security clearance
- Training employees in Maryland to administer the clearance application process
Expenses qualify for both new clearance applications and the cost of maintaining clearances for existing employees.
Wages and salaries — what counts
This distinction matters and is easy to get wrong:
- Not eligible: wages and salaries of employees who are themselves applying for or holding a security clearance.
- Eligible: the W-2 salary or wage of administrative personnel who process clearances for others, pro-rated for the share of their time spent on clearance-related duties. Fringe benefits are excluded.
Example. An administrator earns $50,000 a year and spends half their working hours on federal security clearance duties. The eligible administrative expense is $25,000.
Contracted-out clearance processing. A business may claim the credit if it contracts out the security clearance process, as long as it has documentation proving the costs — for example, an itemized bill or statement from the contractor showing hours worked and the work performed.
2. SCIF Costs Credit
For costs of constructing or renovating a Sensitive Compartmented Information Facility located in Maryland. The SCIF must be accredited by the appropriate federal agency.
- Single SCIF: the lesser of 50% of the costs or $200,000
- Multiple SCIFs: the total of costs, up to $500,000 per calendar year
3. First-Year Leasing Costs Credit
Up to $200,000 for rental payments during the first year of a rental agreement for space leased in Maryland to perform security-based contracting work.
Only qualified small businesses may claim this credit, and a signed Small Business Affidavit must accompany the application.
Key Eligibility Requirements
To qualify for any ESCC credit, a business must:
- Employ 500 or fewer employees
- Incur qualified expenses or costs in a taxable year beginning after December 31, 2022 and before January 1, 2033
- Apply to Commerce by September 15 following the tax year in which the expenses were incurred
- Be certified by Commerce as a qualified business entity eligible for the credit
To claim the first-year leasing costs credit, the business must also meet all four conditions of the qualified small business definition and submit a signed Small Business Affidavit - PDF - 48.46 KB.
Documents You Will Need to Apply
For the security clearance administrative expenses credit
- A detailed itemized accounting or spreadsheet of qualifying administrative expenses
- W2s, total hours worked, and hours worked on qualifying administrative duties for each employee performing administrative duties related to obtaining or maintaining federal security clearances for Maryland employees. Social Security Numbers should be redacted.
- Invoices and proof of payment for each expense for expenses paid to contractors.
For the first-year leasing costs credit
- A copy of the rental agreement for the leased space
- A payment schedule
- Proof of payment for all claimed rent expenses
- Signed Small Business Affidavit - PDF - 48.46 KB attached to the application
For the SCIF costs credit
- A detailed itemized accounting of qualifying SCIF costs, showing SCIF assets and equipment for each facility if there are multiple SCIFs in Maryland
Records to retain (not submitted with the application)
- Proof of service and equipment purchases, such as invoices from SCIF contractors or equipment providers
- Proof of payment, such as a cancelled check, bank statement, or credit card statement
- Proof that SCIF construction or renovation was performed in Maryland, such as contracts or work orders
Two things to know. Commerce recognizes that a business may need to keep a SCIF address confidential — the physical SCIF address may be deleted from submitted documents. Cash transactions are generally not eligible, because they cannot be readily traced to the applicant.
How to Apply
- Gather the itemized accounting, invoices, and proof of payment for the credits being claimed.
- If claiming the first-year leasing costs credit, complete the Small Business Affidavit - PDF - 48.46 KB.
- Submit the application through the ESCC online portal by September 15 following the tax year in which the expenses were incurred.
- Commerce reviews applications and applies proration if total applications exceed $2 million.
- Commerce certifies the approved credit amount by December 15 of the same year.
Important. Late applications cannot be accepted. Applications must be submitted through the web portal by September 15.
Application Review Timeline
- Application deadline: September 15 following the tax year in which expenses were incurred
- Certification issued: by December 15 of the same year
How You Claim the Credit
After Commerce certifies the credit amount, the business claims it using Maryland Tax Form 500CR. There are two options:
- File an amended Maryland income tax return for the taxable year in which the qualified expenses were incurred, attaching a copy of the Commerce certification; or
- Attach a copy of the Commerce certification to an income tax return filed for any taxable year after the qualified expenses were incurred.
Note. The credit applies only to Maryland state income tax. It does not reduce the county income tax add-on.
If the credit exceeds the tax owed for the year, the excess may be carried forward until fully used.
Frequently Asked Questions
Employer Security Clearance Costs Tax Credit FAQs
September 15 following the tax year in which the expenses were incurred. For Tax Year 2025 expenses, the deadline is September 15, 2026. Late applications cannot be accepted.
The credit is available for eligible expenses and costs for taxable years beginning after December 31, 2022 but before January 1, 2033.
It depends whose. Wages and salaries of employees who are applying for or holding a clearance are not eligible. The W-2 salary of administrative personnel who process clearances for others is eligible, pro-rated for the share of time spent on clearance duties. Fringe benefits are excluded.
Yes. Qualified administrative expenses include both new clearance applications and the cost of maintaining federal security clearances for existing employees.
Yes. A business may apply for the administrative expenses credit, the SCIF costs credit, and (if a qualified small business) the first-year leasing costs credit in the same year. Total credits are still subject to the $2 million statewide cap and proration.
A business that is independently owned and operated, is not a subsidiary of another firm, is not dominant in its field of operation, and did not employ more than 25 individuals in its most recently completed fiscal year. This definition comes from Tax-General Article §7-218.
Credits are prorated. Each business’s credit is multiplied by $2 million divided by the total credits applied for by all applicants. If a business applied for $250,000 and total applications were $4 million, it would receive $125,000.
The excess may be carried forward until fully used.
Yes, provided the business has documentation proving the costs — for example, an itemized bill or statement from the contractor showing hours of work and what was done.
Following standard tax record procedures, the business must maintain information on the expenses and costs claimed for the credits.
Generally yes, subject to the Maryland Public Information Act and Maryland Tax-General Article, Title 13, Subtitle 2. The company consents to the release of certain information in the tax credit application.
Legal Notices and Required Language
This credit is authorized under Maryland Tax-General Article §10-732.
Amending legislation:
- Senate Bill 721 (Chapter 438, 2023) - PDF — effective July 1, 2023
Program resources:
- ESCC Regulation (PDF) - PDF - 34.39 KB
- Small Business Affidavit Form (PDF) - PDF
- ESCC online application portal
- Tax-General Article §7-218 (small business definition)
Applicants should consult the statute and applicable regulations for the complete legal requirements governing this tax credit.
Contact
Jason Sobel
Tax Specialist
Maryland Department of Commerce
Office of Finance Programs
Email: [email protected] - PDF - 48.46 KB
Phone: 410-767-4980