r&d tax credit michigan

R&D Tax Credit Michigan

The R&D tax credit can help a wide variety of businesses
offset and reduce their income tax liability, in addition to
providing many other benefits.

Michigan offers a unique R&D tax credit that is calculated at an impressive rate of 1.9% of Qualified Research Expenses (QREs) incurred within the state. However, the amount of credit that a taxpayer can claim is limited to only 75% of their tax liability. Interestingly, this credit is not restricted to C-Corporations alone, but is also extended to flow-through entities, making it an inclusive incentive.

No, Michigan R&D Tax Credit is not applicable to be carried forward.

To be considered qualified research activities, the research must aim to create or enhance products, processes, or software in a way that involves a significant amount of uncertainty. Additionally, the activities must include experimentation and must be conducted to uncover technological information.

For Michigan to claim the R&D Tax credit, current year returns must be submitted along with current year claims, while amended claims are subject to standard amending rules. Unlike the federal guidelines, the documentation requirements for this credit are strictly enforced, and taxpayers must be prepared to produce receipts, key documents, and financial statements as proof of their claimed expenses. Both C-Corporations and flow through entities are eligible to claim Michigan R&D tax credit.

R&D Tax Credits in Michigan

Michigan offers a unique opportunity for businesses to benefit from its state-specific R&D tax credit program. Unlike the federal R&D tax credit, Michigan’s program requires that research and development activities occur within the state. This ensures that businesses contributing to the state’s economy receive the benefits of the program.

The current Michigan R&D tax credit offers an unparalleled advantage, providing a credit of 1.9% of Michigan Qualified Research Expenses (QREs). This credit is limited to 75% of a taxpayer’s tax liability, making it a valuable tool for businesses of all sizes. This credit is designed to encourage businesses to invest in research and development activities within the state, with the aim of promoting economic growth and innovation.

r&d tax credit michigan

What Goes into the Michigan R&D Tax Credit as a Qualified Research Expense?​

The Michigan research and development tax credit allows for businesses to claim a percentage of their qualifying research expenses. 

In order for an expense to qualify it must meet specific research criteria:

  1. Products, services, processes, or software must be new or improved in some way 
  2. Uncertainty must be eliminated as a result of the research 
  3. The research must be technological 
  4. Research must include experimentation processes of some nature

The types of expenses that are applicable to claim under the credit include the following:

Wages paid to employees who are directly involved in the performance of research and development activities within the state of Michigan. This includes payments made to subcontractors involved in the performance of such activities.

Take Advantage of the
R&D Tax Credit with Source Advisors

Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and also determine any state R&D tax credit availability. Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.