Michigan R&D Tax Credit

Research and development activities are essential to most businesses. They allow companies to advance their services, products, and processes by creating new knowledge or using existing knowledge to create a new product or process. However, the cost of R&D activities can be substantial. For this reason, many companies turn to R&D tax credits as an effective way to reduce their tax bill.

To qualify for the Michigan research and development tax credit, you must meet certain criteria set by the state. Take a closer look at the eligibility requirements and other helpful information concerning the Michigan R&D tax credit program to discover whether your company can apply.

Michigan Research Tax Credit Explained

R&D tax credits in Michigan have typically mirrored federal R&D tax credits quite closely. So, if your business is eligible for the federal credit, you can also apply for the Michigan R&D tax credit. The only exception is that your R&D costs and activities must have taken place in the state.

The credit is 1.9% of QREs and is restricted to 75% of your tax liability. You can claim it through Form 4570, Part 4.

Legislators in Michigan continue to submit bills to reinstate the tax credit. For instance, H.B. 5601, now under bipartisan discussion at the capitol, would allow innovative businesses to receive a 15% credit on the state’s corporate income tax. This bill will help all companies in Michigan that are active in R&D, especially those in advanced life sciences, semiconductor, and automotive sectors.

However, state legislators admit that such a plan might have unforeseen effects on Michigan’s state budget. In that regard, they suggest restricting the number of Michigan tax credits available to the state annually. Likewise, legislators are concerned about ensuring equal access to research and development for startups and small life science firms.

How to Calculate Michigan Research Tax Credit

The credit is 1.9% of your QREs for the taxable year.

Michigan Research and Development Tax Credit: Takeaway

Several federal and state tax credits can help defray your R&D costs. However, the combined value of the Michigan R&D tax credit and the other tax credits can never exceed 75% of your annual tax liability.

FAQs

What kind of companies can apply for an R&D tax credit in Michigan?

Partnerships, LLCs, S-Corporations, C-Corporations

What is the deadline for applying for an R&D tax credit in Michigan?

You must submit your application together with the Michigan Tax Return.

What data do I need to calculate an R&D tax credit in Michigan?

Claim period QREs (Qualified R&D Expenses)

Is credit carryforward an option in Michigan?

No.