Michigan’s R&D Tax Credit: What Your Business Needs to Know

On January 13, 2025, Governor Gretchen Whitmer signed HB 5100 and 5101 into law, ushering in a transformative opportunity for Michigan businesses. These bipartisan bills introduce a new Research and Development (R&D) Tax Credit designed to incentivize innovation, foster economic growth, and position Michigan as a leader in cutting-edge industries. 

Whether you’re a small startup or a major industry player, understanding this credit—and how to leverage it—can significantly impact your bottom line.  

Here’s what you need to know to stay ahead and take advantage of these new incentives. 

What Is the Michigan R&D Tax Credit? 

The R&D Tax Credit allows businesses conducting qualified research and development within Michigan to claim a percentage of their expenses as a tax credit. This applies to companies of all sizes, but the benefits vary depending on your employee count: 

Small Businesses (fewer than 250 employees): 

• Credit equals 3% of qualifying R&D expenses up to the base amount. 
• If expenses exceed the base amount, the credit jumps to 15% of the excess. 
• Maximum credit: $250,000 annually. 

Large Businesses (250 or more employees): 

• Credit equals 3% of qualifying R&D expenses up to the base amount. 
• Expenses exceeding the base amount earn a 10% credit on the excess. 
• Maximum credit: $2,000,000 annually. 

Base Amount Explained: 

The “base amount” is tied to the average of your qualifying R&D expenses from previous tax years. If your current year’s spending surpasses this baseline, the higher credit percentages on the excess apply. 

Who Qualifies for the Credit? 

To qualify, your business must be an authorized entity—either a corporate or pass-through structure—that incurs eligible R&D expenses within Michigan during the tax year. These expenses typically include: 

• Wages: Salaries paid to employees directly engaged in R&D activities. 
• Supplies: Costs of materials consumed in the research process. 
• Contract Research: Payments to third parties for R&D conducted on your behalf. 

Additionally, collaborations with Michigan’s renowned research universities may provide up to an extra $200,000 in tax credits, making partnerships with academic institutions a strategic advantage. 

How to Claim the Credit 

Businesses can claim this credit for tax year 2025 by submitting the required form to the Michigan Treasury Department no later than April 1, 2026. For subsequent tax years, forms must be filed by March 15, following the end of the tax year. 

It’s crucial to maintain detailed and accurate documentation, including: 

• Project descriptions and objectives. 
• A breakdown of R&D expenses. 
• Payroll records for staff involved in R&D activities. 
• Supporting documentation for third-party contracts. 

Proper record-keeping ensures compliance and maximizes the value of the credit you can claim. 

Why This Matters for Michigan Businesses 

This new R&D Tax Credit isn’t just about saving money—it’s about fostering innovation and growth across industries. By reducing the financial burden of R&D, businesses can reinvest savings into groundbreaking projects, talent acquisition, and scaling operations. 

For startups and small businesses, the credit levels the playing field, providing access to much-needed resources. For larger companies, it offers substantial relief to fuel large-scale innovations. 

Take Action Today 

If your business engages in research and development, now is the time to act. Start by: 

1. Evaluating Eligibility: Review your activities and expenses to determine if they qualify under Michigan’s R&D Tax Credit guidelines. Our team can help if you have questions or need support in determining eligibility.  
2. Documenting Thoroughly: Accurate and detailed records are essential for maximizing your credit claim. 
3. Exploring University Partnerships: Collaborations with academic institutions can enhance your credit and provide access to cutting-edge resources.

Navigating the complexities of tax credits can be challenging, but you don’t have to do it alone. At Maner Costerisan, our team of tax professionals is ready to help you evaluate your eligibility, streamline the filing process, and unlock the full potential of Michigan’s new R&D Tax Credit.

Contact Maner Costerisan at maner@manercpa.com for expert guidance on making the most of these new tax incentives.