Michigan’s R&D Credit: A Win for Innovation-Focused Businesses
Michigan businesses investing in research and development will soon have a valuable new opportunity to reduce their tax burden, and even receive a refund. Beginning with the 2025 tax year, a new state-level R&D credit is available for qualifying companies that incur expenses related to research and development within the state.
Modeled on the Federal Credit
The Michigan R&D credit is structured to align closely with the federal research credit, making it easier for companies already claiming the federal version to benefit at the state level. If your business tracks and documents qualified research expenses (QREs) for federal purposes, that same information will generally form the basis of your Michigan claim.
Who Qualifies for the Michigan R&D Tax Credit?
Businesses of all sizes can qualify, but those with fewer than 250 employees stand to benefit most. For these smaller companies, the credit equals the lesser of $250,000 or the sum of 3% of base-period expenses plus 15% of expenses above the base amount. This structure rewards companies that are increasing their R&D investment over time, providing a meaningful incentive to continue innovating within Michigan.
A Refundable Credit
Unlike many other business tax incentives, Michigan’s new R&D credit is refundable. This means that if your credit amount exceeds your state tax liability, the state will issue a refund check for the difference. Even early-stage or pre-profit companies that have yet to generate significant taxable income can realize immediate cash flow benefits from this provision.
Key Application and Filing Details
To claim the Michigan R&D credit, you’ll need to apply by April 1, 2026, following the close of the 2025 tax year. Because the application and credit calculation occur after year-end, most taxpayers will need to extend their Michigan tax return to allow sufficient time for approval and accurate reporting.
The filing process depends on your business structure:
C corporations will claim the credit on their Corporate Income Tax (CIT) return.
Pass-through entities, such as S corporations, partnerships, and LLCs taxed as partnerships, will claim the credit on their annual Sales, Use, and Withholding (SUW) return.
How CSH Can Help
With Michigan’s new refundable R&D credit taking effect, now is the time to assess your company’s eligibility and put processes in place to capture qualified expenses. CSH’s State and Local Tax (SALT) experts can help you navigate the nuances of this credit, coordinate your federal and state claims, and ensure your documentation meets the state’s requirements.
Our team works closely with businesses across industries to identify, calculate, and substantiate valuable credits and incentives, helping you maximize available benefits and reinvest in innovation.
Connect with CSH’s SALT team today to start planning for the 2025 credit and take full advantage of this new opportunity for Michigan businesses.
