Key Takeaways
- Michigan has reinstated R&D tax credits that started on January 1, 2025, offering financial incentives to businesses of all sizes to support innovation and growth.
- Large businesses can claim up to $2 million in tax credits, while small businesses receive a more generous 15% credit on qualifying expenses above a set base amount, capped at $250,000 per year.
- Additional incentives include a 5% tax credit for R&D collaborations with Michigan research universities, reinforcing partnerships between industry and academia.
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In a significant move to bolster Michigan’s innovation landscape, Governor Gretchen Whitmer signed into law a series of bipartisan bills on January 13, 2025, introducing the Michigan Innovation Fund and a Research and Development (R&D) Tax Credit. These new R&D tax credits offer a substantial opportunity for businesses like yours to innovate, grow, and thrive. The most widely applicable of these bills are House Bills 5100 (Public Act 186 of 2024) and 5101 (Public Act 187 of 2024), re-establishing a Michigan R&D tax credit.
Michigan R&D Tax Credits 2025: Your New Incentive for Innovation
The newly introduced R&D tax credits were implemented on January 1, 2025, and are designed to provide substantial financial incentives for businesses engaging in research and development activities within the state. Whether you’re a large corporation or a small business, these credits can help you reduce costs and invest more in innovation.
Benefits for Large Businesses (250+ Employees)
- If your business has over 250 employees, you can claim a tax credit calculated as 3% of your qualifying R&D expenses up to a predefined base amount. For expenses that exceed this base amount, the credit increases to 10%, with a cap of $2,000,000 per tax year. This can significantly reduce your tax liability and free up resources for further innovation.
Advantages for Small Businesses (<250 Employees)
- For smaller businesses, the R&D tax credit is even more generous. You can claim 15% credit on R&D expenses exceeding the base amount, while the rate stays 3% for expenses up to the base amount. The cap for small businesses is set at $250,000 per tax year. This can provide a crucial boost to your R&D efforts, helping you stay competitive and grow.
Credit Limitations
- The aggregate amount of credit available is capped at $100,000,000 per calendar year. If the aggregate number of tentative claims exceeds this limit, a proration system is applied. It’s essential to plan your R&D activities and claims carefully to maximize your benefits.
Refundability
- If the amount of the credits allowed under this section exceeds your tax liability for the tax year, the part of the credit that exceeds your tax liability must be refunded. This allows you to fully receive help from the credits, even if your tax liability is low.
Incentives for University Collaborations
Collaboration between businesses and research universities can lead to groundbreaking innovations. To promote such partnerships, an added 5% tax credit is available for R&D expenses incurred through collaborations with state research universities. This credit is capped at $200,000 per year and requires a formal agreement between your business and the university. This provision not only supports your business but also strengthens ties between industry and academia, fostering an ecosystem of shared knowledge and resources.
Claim Submission and Deadlines
To receive help from these credits, you must adhere to strict submission guidelines. Regardless of your year end, tentative claims must be filed by March 15 for the preceding calendar year activities, except for calendar 2025 (due date is April 1, 2026). Proper planning and prompt submission are crucial to maximizing your benefits.
A Brief History of Michigan’s R&D Credit
Michigan’s journey with R&D tax credits has evolved significantly over the years, reflecting changes in the state’s broader tax landscape. Initially, the R&D credit was part of the Single Business Tax (SBT), which was Michigan’s primary business tax from 1976 until it was repealed effective December 31, 2007. SBT included provisions for R&D credits to encourage innovation within the state.
Michigan Business Tax (MBT) replaced SBT effective January 1, 2008. MBT, which also incorporated R&D credits, faced criticism for its complexity and was eventually replaced by the Michigan Corporate Income Tax (CIT) effective January 1, 2012. CIT simplified the tax structure but cut most credits, including the R&D credit, leading to calls from the business community for incentives to support research and development.
The reintroduction of R&D tax credits under the current legislation marks a return to incentivizing innovation, aligning with Michigan’s historical commitment to foster technological advancement and economic growth.
A Bold Step Forward
The introduction of the Michigan Innovation Fund and R&D Tax Credit marks a bold step forward in Michigan’s economic strategy. By incentivizing research and development, the state aims to attract high-tech industries, create high-paying jobs, and solidify its reputation as a hub for innovation.
If you’re looking to maximize your R&D tax credits and drive technological advancement, consider exploring professional services that can help you navigate these new incentives and optimize your financial outcomes.
How You Can Maximize Michigan’s R&D Tax Credits
We understand the complexities of navigating new tax incentives like Michigan’s R&D tax credits. Our team is dedicated to helping your business maximize these opportunities. We offer tax planning and compliance services to help you fully receive help from the credits available. Whether you’re a large corporation, a small business, or a business looking to leverage valuable university partnerships, we provide personalized guidance to optimize your R&D investments, minimize liabilities, and align with your long-term financial goals. Additionally, our knowledge in helping collaborations with research universities can help you unlock more credits and drive innovation. Contact us to explore how we can support your business in seizing this opportunity.