Michigan Expands R&D Tax Credit, Boosting Incentives for Innovation
In March 2024, the Michigan Senate passed legislation significantly enhancing the state’s Research and Development (R&D) Tax Credit, which had previously offered a modest 1.9% credit on qualifying expenses within Michigan. This new legislation, featuring House Bill 5100 (amending the “Income Tax Act of 1967”), now provides a credit of up to 15% on qualifying R&D expenses. The expanded program aims to encourage Michigan businesses to grow their in-state operations while attracting out-of-state companies to take advantage of this substantial benefit.
Who Qualifies for Michigan’s R&D Tax Credit?
Effective for tax years beginning on or after January 1, 2025, Michigan taxpayers who engage in qualified research activities within the state are eligible for a non-refundable R&D tax credit. The amount of credit available depends on the size of the taxpayer’s workforce and the extent of collaboration with a Michigan research university.
To qualify, research activities must meet federal requirements under U.S. Code § 41, and eligible expenses include:
- Employee Wages: Wages paid to employees performing qualified research at Michigan-based facilities.
- Supplies: Any materials or supplies used in research activities at Michigan facilities.
- Contract Research: Expenses for third-party research conducted in Michigan on behalf of the taxpayer.
- Computer Usage Fees: Costs associated with using computers for qualified research.
Credit Calculation Structure
The Michigan R&D Tax Credit calculation varies by company size and includes additional incentives for university collaboration:
- For Companies with 250 or More Employees: The credit includes 3% of qualifying R&D expenses up to a base amount and 10% of expenses exceeding this base amount, with an annual cap of $2,000,000 per taxpayer.
- For Companies with Fewer than 250 Employees: Eligible taxpayers can claim 3% on R&D expenses up to the base amount, and 15% on expenses above this base, capped at $250,000 annually per taxpayer.
- University Partnerships: Taxpayers collaborating with Michigan-based research universities can earn an extra 5% credit on QREs over the base amount, capped at $200,000.
This structure rewards both large and small companies engaged in qualified R&D, with added incentives for those that partner with state research institutions to drive innovation.
How to Apply for the Credit
To receive the credit for expenses incurred in tax year 2025, taxpayers must submit a tentative claim by April 1, 2026. Afterwards, all eligible Michigan taxpayers must submit their R&D tax credit claims by the following March 15. The program has a state budget cap of $100,000,000, and if applications exceed this limit, credits will be prorated among claimants. This credit is refundable.
Maximizing R&D Tax Benefits with Expert Support
Identifying qualified R&D expenses and applying for the credit can be complex. Partnering with specialists experienced in R&D tax credits ensures taxpayers meet all necessary criteria and maximize their benefits. DST Advisory Group is a dedicated R&D tax credit consultancy, offering assessments to help businesses of all sizes—from start-ups to major corporations—secure federal and state credits efficiently. Reach out to schedule a free assessment and learn more about how these credits can support your innovation efforts in Michigan and beyond.