New Michigan R&D Credit: What Businesses and Taxpayers Must Know
Michigan introduced a new Research & Development (R&D) tax credit available for the 2025 tax year (and future years), providing significant incentives for businesses investing in research & development activities within the state. The credit is designed to encourage companies to expand innovative activities, create highly skilled jobs, and keep technological development in Michigan.
One of the most critical aspects of the Michigan R&D credit is the mandatory “tentative claim” filing requirement.
The application process, deadlines, and documentation requirements are very specific, and businesses must plan ahead to benefit from the credit.
Below is a high-level overview of how the new Michigan R&D credit works and what businesses should start doing now.
New Michigan R&D Credit: Big Picture
- Effective for tax years beginning on or after January 1, 2025.
- Who is eligible:
- Corporate Income Tax (CIT) taxpayers, and
- Certain flow-through entities that are Michigan withholding agents but not subject to CIT or the Michigan Business Tax.
- What expenses qualify:
- Michigan follows the same definition of “qualified research expenses” (QREs) (wages, supplies, contract research, etc.) as Federal under IRC Section 41, but Michigan limits the QREs to those activities performed in Michigan.
- Incremental credit structure:
- Credit is based on qualifying Michigan R&D expenses above a base amount (prior three years’ average expenses), with a tiered formula that can increase the benefit for taxpayers collaborating with a Michigan research university.
- Statewide annual cap:
- The state has imposed a statewide cap of $100 million in total credits per year, which may result in prorated credits if claims exceed the cap.
- Refundable credit:
- The credit is refundable (after all nonrefundable credits), which means the taxpayer can receive the credit as a cash refund if the credit exceeds the company’s tax liability. This is particularly valuable for early-stage or loss-position companies.
Timing and Process: What Businesses Need To Do
- Determine 2025 eligibility and estimate benefits:
- Identify Michigan activities potentially qualifying as QREs under IRC § 41(b) (wages, supplies, contract research, etc.) performed in Michigan.
- Model expected 2025 Michigan QREs and compare to historic levels to estimate the incremental base and potential credit.
- File the required tentative credit claim:
- For qualifying expenses incurred during the 2025 calendar year, taxpayers must submit a tentative credit claim to the Michigan Department of Treasury in the form and manner it prescribes.
- The deadline for submitting this tentative claim for 2025 expenses is April 1, 2026.
- For later years, the tentative claim generally must be filed by March 15 following the calendar year in which the R&D expenses were incurred.
- MI Dept of Treasury review and credit allocation:
- Treasury will review all timely tentative claims, determine total qualifying credits, and, if the statewide cap would be exceeded, proportionately reduce credits for all claimants.
- Treasury will send out a notice with the proration adjustment. Keep in mind you may need to extend your Michigan return if your R&D credit adjustment is still pending.
- Claim the credit on the annual return:
- Approved credits are then claimed on the taxpayer’s return for the relevant year after other nonrefundable credits.
If your business has R&D activity in the state of Michigan, we can help you model the impact of claiming a Michigan R&D credit and align your tax planning accordingly.
Documentation and Recordkeeping: What Is Needed for Support
The tentative claim must be based on actual (not estimated) qualifying R&D expenses, which puts more pressure on tracking, developing support, and timing the analysis early in the year.
While Michigan Treasury has not yet finalized all forms and procedures, businesses should expect documentation requirements similar to federal R&D credit standards.
Key documentation typically includes:
- Detailed descriptions of qualifying research projects
- Documentation of technological uncertainty, experimentation, and new or improved products, processes, or software
- Employee wage records tying time to qualifying R&D projects in Michigan
- Supply and prototype costs, including general/ledger detail and invoices
- Contract research agreements
- Project accounting records allocating R&D expenses
- Internal project documentation (engineering notes, test results, etc.)
Because Treasury will base statewide cap allocations on the information provided in the tentative claims, accuracy and completeness of the reported qualifying expenses are critical.
Maintaining contemporaneous documentation will also be critical in case of state review or audit.
High-Level Comparison of Federal vs Michigan R&D Credit
| Feature |
Federal R&D Credit |
Michigan R&D Credit |
|---|---|---|
Credit rate |
14% ASC typical or regular credit |
3% QREs up to base + 10% or 15% incremental (above base) |
Refundable |
No |
Yes |
Statewide cap |
None |
$100M annually |
Per-taxpayer cap |
None |
$250k / $2M |
Pre-filing requirement |
None |
Tentative claim required |
Expense measurement |
Tax year |
Calendar year |
Geographic restriction |
U.S. |
Michigan only |
Planning Opportunities
Because the credit is incremental and capped statewide, early planning can make a significant difference.
Businesses should consider:
- Identifying qualifying R&D activities early in the year
- Implementing processes to track eligible expenses
- Coordinating state and federal R&D credit strategies
- Modeling expected credits to determine whether the tentative claim is worthwhile
Hungerford is Here to Help
If your business has R&D activity in the state of Michigan, do not hesitate to reach out — we can help you model the impact of claiming a Michigan R&D credit and align your tax planning accordingly.
Reach out to Hungerford today to learn exactly how these changes will affect your situation and to develop a personalized tax strategy that maximizes your benefits.
Disclaimer: This blog post is for informational purposes only and does not substitute for personalized advice. Please consult your tax professional for guidance tailored to your situation.
