Michigan Enacts Refundable R&D Tax Credit

On January 13, 2025, Governor Gretchen Whitmer signed bipartisan legislation re-establishing a refundable Research and Development (R&D) Tax Credit as part of the Michigan Innovation Fund initiative. Primarily through House Bills 5100 (Public Act 186 of 2024) and 5101 (Public Act 187 of 2024), this aims to foster innovation, stimulate job growth, leverage Michigan universities, and strengthen the state’s technological leadership.

Eligibility

The credit is available to authorized businesses, including corporations, insurance companies, financial institutions, unitary business groups, and flow-through entities (FTEs) with increased qualifying R&D expenses in Michigan during the calendar year. The credit cannot be assigned or transferred, and individual FTE members cannot claim it separately. Excess credit is refundable.

Credit Amounts

• Large Businesses (250+ employees): 3% of qualifying R&D expenses up to a base amount, and 10% of expenses exceeding it, with an annual cap of $2 million per taxpayer.
• Small Businesses (<250 employees): 3% of qualifying R&D expenses up to a base amount, and 15% of expenses exceeding it, with an annual cap of $250,000 per taxpayer.
• University Collaboration: An additional 5% credit (up to $200,000 annually) for R&D expenses related to collaborations with Michigan research universities.

Aggregate Cap: The total annual R&D credit is capped at $100 million.

Claiming the Credit

A tentative claim must be submitted to the Michigan Department of Treasury by April 1, 2026, for 2025 expenses. For 2026 and subsequent years, the deadline is March 15 annually.

Pro-ration of Credits

If total tentative claims exceed $100 million, credits will be prorated as follows:

• If aggregate claims are ≤ $25 million: Small business credits are not prorated. Large businesses receive a pro rata share of the remaining credit.
• If aggregate claims are > $25 million: Small business credits are prorated to equal their pro rata share of $25 million. Large businesses receive a pro rata share of the remaining $75 million.
• If small business claims exceed 25% of all claims: All claims (small and large businesses) will be prorated based on their pro rata share of the total $100 million cap.

The R&D credit is claimed on the taxpayer’s/employer’s annual tax return for the same year the expenses were incurred, after all other non-refundable credits.

Reporting

The Michigan Department of Treasury, in partnership with the Michigan Strategic Fund, will annually report to the legislature and governor on the R&D credit’s operation and effectiveness, including the names of claimants and the credit amounts awarded.

Key Implications

• Be mindful of the tentative claim deadlines: April 1, 2026 for 2025 expenses, and March 15 annually thereafter.
• The $100 million annual aggregate cap may lead to proration of credit amounts.
• Claimant names and awarded credit amounts will be part of a public legislative report.
• The Michigan R&D credit structure aligns with the federal R&D credit (IRC Section 41), potentially simplifying calculations for those already claiming the federal credit.
• No portion of the credit may be assigned or transferred.

For more information on how to claim this tax credit, connect with our team here.