The Reintroduction of the Michigan R&D Tax Credit

Are you a startup owner investing in R&D in Michigan? We’ve got some great news for you!

Michigan is reintroducing the Research and Development Tax Credit! This legislation is part of Michigan’s ongoing effort to foster technological advancement and economic growth, aligning with the state’s historical commitment to promoting R&D.

Let’s dive deeper into this.

What is the Michigan R&D Tax Credit?

The Michigan R&D Tax Credit provides businesses with a financial incentive to conduct qualifying research and development activities within the state. 

Governor Gretchen Whitmer recently signed House Bills 5100 and 5101 into law, now enacted as Public Acts 186 and 187 of 2024. This legislation introduces a new R&D Tax Credit for authorized businesses, effective for tax years beginning on or after January 1, 2025.

How can Startups Benefit from the R&D Tax Credit?

The reintroduced R&D Tax Credit provides significant benefits for small businesses and startups, particularly those with fewer than 250 employees. 

These businesses are eligible for a higher percentage of credit, which can be a game-changer for startups that may have limited access to capital but are heavily invested in innovation.

The financial relief from this credit can help offset R&D costs, allowing small businesses to reinvest in growth, attract talent, and accelerate their product development cycles. 

By lowering the financial barriers to research and development, the R&D Tax Credit enables small businesses and startups to compete, build cutting-edge technologies, and contribute to Michigan’s tech ecosystem.

Key Provisions of the R&D Tax Credit in Michigan

Credit Calculation

• Businesses with 250+ Employees: Eligible for a credit equal to 3% of qualifying R&D expenses up to a base amount, plus an additional 10% of expenses exceeding that base. The maximum credit is capped at $2 million per tax year per taxpayer.
• Businesses with Fewer Than 250 Employees: Eligible for a credit equal to 3% of qualifying R&D expenses up to a base amount, plus an additional 15% of expenses exceeding that base. The maximum credit is capped at $250,000 per tax year per taxpayer.

Additional Credit for University Collaboration

An extra 5% credit is available for qualifying R&D expenses incurred through collaboration with a Michigan research university, formalized via a written agreement. This additional credit is capped at $200,000 per tax year per taxpayer.

Annual Credit Cap

The total R&D Tax Credits authorized by the Michigan Strategic Fund are limited to $100 million per calendar year. Of this, at least $25 million is reserved for eligible businesses with fewer than 250 employees.

Application Process 

Taxpayers must submit a tentative claim to the Michigan Department of Treasury by April 1, 2026, for R&D expenses incurred in 2025. For expenses incurred in subsequent years, the deadline is March 15, following the end of the calendar year in which the expenses were incurred. 

The claim must detail the amount of qualifying R&D expenses and indicate whether the claim includes collaboration with a research university.

Qualified R&D Activities

The Michigan R&D Tax Credit covers a broad range of activities, including:

• Basic Research: Fundamental scientific studies aimed at expanding knowledge.
• Applied Research: Research focused on discovering and developing new products and processes.
• Experimental Development: Systematic work to design, develop, and improve products and processes.

Eligible expenditures for the credit include:

• Wages paid to employees directly involved in R&D activities.
• Supplies used in the R&D process.
• A portion of payments made to third-party vendors conducting research on behalf of the taxpayer in Michigan.

Final Thoughts

The reintroduction of the Michigan R&D Tax Credit represents a significant advancement in the state’s economic strategy. By incentivizing R&D, Michigan is positioning itself as a leader in innovation. 

Moreover, this legislation not only supports established companies but also offers substantial opportunities for small businesses and startups to thrive by easing the financial burden of R&D.

However, it is important for businesses to meet eligibility requirements and maintain thorough records of their R&D expenditures.

If you need help with this, Finvisor can guide you through the process, ensuring your business remains compliant while maximizing the benefits of the R&D Tax Credit. 

To learn more about how Finvisor can support your R&D Tax Credit claims, contact us today!