Michigan Introduces R&D Tax Credit: Key Insights for Business Owners
- Baker Holtz
- Feb 10
- 2 min read
Michigan recently enacted a Research & Development (R&D) tax credit, signed into legislation on January 13th, 2025 by Governor Whitmer. The R&D Tax Credit provides financial incentives to businesses engaged in innovation and technological advancements. Businesses can claim the R&D credit starting in tax years beginning on or after January 1st, 2025.
Who Qualifies
The credit is available to corporations and pass-through entities provided that they are engaged in qualified research defined as:
Project / product involves an element of uncertainty
The activity is technological in nature
Requires a process of experimentation
Intention to develop new or improved products, processes, or software that is new to the taxpayer, not to the world.
How the Credit Works
For businesses with fewer than 250 employees, the credit is equal to 3% of Qualified Research Expenses (QREs) up to a base amount plus 15% of QREs exceeding the base amount, with a maximum credit of $250,000. For businesses with more than 250 employees, the credit is equal to 3% of QREs up to the base amount plus 10% of QREs exceeding the base amount, capped at $2 million.
The program has an annual funding limit of $100 million, with $25 million specifically reserved for small businesses. If total claims exceed these limits, credits will be distributed on a prorated basis.
Eligible Expenses - QREs
Eligible expenses are defined as:
Wages paid to employees engaged in research or supporting research at a Michigan facility
Costs of supplies used in research activities within Michigan
Expenses for third-party research performed in Michigan.
Key Considerations
The program has an annual $100 million budget, with $25 million reserved for small businesses
The credit is refundable, meaning businesses can receive a benefit even if they have little or no tax liability.
To apply for the 2025 tax year, claims must be submitted to the Michigan Department of Treasury by April 1, 2026. For subsequent tax years, the filing deadline is March 15 of the following year.
To gain a better understanding this new legislation and guidelines, visit the Michigan Legislature Website and the IRC Section 41 guidelines.
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