Illinois R&D Tax Credit

If you run a business in Illinois, you might be interested in applying for the state’s R&D tax credit. The credit can help you cover all your research expenses, including qualifying services, supplies, and contract fees.

Learning about the Illinois R&D tax credit is challenging but definitely worth your time. You can discover whether your business activities qualify and how to calculate the amount of money you can get.

Illinois Research and Development Tax Credit Explained

For research activities conducted in the state of Illinois, an R&D credit is available against income taxes until January 1st, 2027. You can calculate it as 6.5% of qualified expenses over a basic amount. The base amount is the average of the QREs attributable to Illinois over the previous three years. Credits that are beyond what can be used in a tax year may be carried over for up to five years.

The top three R&D industries in Illinois are agriculture, equipment, and, unsurprisingly, pharmaceuticals. The banking and insurance industries are also seeing innovation in the state. The activities that are not eligible for the Illinois R&D credit include:

• research carried out following the start of commercial manufacturing;

• analyzing how to customize products and services to suit a certain client’s requirements;

• replication of a current product or method;

• studies or surveys;

• analysis of certain internal-use software;

• research carried out outside of Illinois;

• research in the humanities, social sciences, or “soft” sciences;

• research supported by external funding (or a government entity).

How to Calculate the Illinois Research Tax Credit

6.5% on the difference between the amount of IL-qualified research expenses and the average amount of QREs for the past three tax years.

Illinois R&D Tax Credit: Takeaway

Illinois research tax credit is a nonrefundable credit you can claim against Illinois corporate income tax liability for expenses qualifying under IRC §41 related to research conducted in Illinois  35 ILCS 5/201(k); 86 Ill. Adm. Code 100.2160). However, unless new legislation is approved, the Illinois research and development tax credit will expire on December 31st, 2027.

FAQs

What kind of companies can apply in Illinois?

Partnerships, LLCs, S-Corporations, C-Corporation

What is the deadline for applying in Illinois?

You must submit your application at the same time as the Illinois Tax Return.

What data do I need to calculate credit in Illinois?

Claim period QREs (Qualified R&D Expenses)

What information do I need to provide?

Georgia Gross Receipts for the past three years.

Is credit carryforward an option in Illinois?

Yes, up to five years.