Michigan has enacted Public Acts 186 and 187 of 2024, creating a new Research & Development (R&D) Tax Credit for eligible businesses beginning with tax years starting on or after January 1, 2025.  The required R&D Credit Application opens on January 1 following the expense year (for 2025 expenses, January 1, 2026) and must be filed on time to preserve eligibility.

Application Timing and Deadlines

The R&D Credit Application must be submitted through Michigan Treasury Online (MTO).

• 2025 expenses: Application due April 1, 2026
• 2026 and later expenses: Application due March 15 following the expense year

Late applications will not be accepted.

Who May Qualify

The credit is available to:

• Michigan Corporate Income Tax (CIT) taxpayers, and
• Certain flow-through entities that are subject to Michigan income tax withholding but not subject to the CIT or Michigan Business Tax (MBT)

To qualify, a business must:

• Have Michigan qualified R&D expenses (MQREs) greater than a base amount
• Submit a timely R&D Credit Application

Qualifying R&D expenses generally follow the federal definition under IRC Section 41(b) and must relate to research conducted in Michigan. Both fiscal-year and calendar-year taxpayers must compute base amounts using calendar-year R&D expenses.

Credit Amount Overview

Businesses with fewer than 250 employees

• 3% of R&D expenses up to the base amount
• 15% of R&D expenses above the base amount
• Maximum annual credit: $250,000 (before proration)

Businesses with 250 or more employees

• 3% of R&D expenses up to the base amount
• 10% of R&D expenses above the base amount
• Maximum annual credit: $2,000,000 (before proration)

 Additional Credit for University Collaboration

An additional 5% credit may be available for qualifying R&D expenses incurred in collaboration with a Michigan research university under a written agreement.

• Additional credit capped at $200,000 per year

 Other Important Rules

• The credit is refundable
• It must be claimed after all nonrefundable credits
• Owners of flow-through entities may not separately claim the credit
• The credit cannot be assigned or transferred

• Credits may be prorated if statewide claims exceed the $100 million annual program cap.

Claiming the Credit on the Return

After submitting the R&D Credit Application, and after the Michigan Treasury publishes any

applicable proration percentage, the credit is claimed on the taxpayer’s Michigan

annual return (or annual withholding reconciliation, as applicable).

• CIT taxpayers: generally claimed on the annual CIT return for the tax year that includes the expense year (April 30 for calendar-year filers).
• Eligible withholding filers (flow-through employers not subject to CIT/MBT): generally claimed on the annual withholding reconciliation due February 28, two calendar years following the expense year.

What Businesses Should Do Now

Businesses incurring R&D expenses in Michigan should document and prepare their applications now to ensure timely filing and maximize the available credit.

How KNAV Can Help

R&D credits are complex, highly technical, and require careful documentation and timely filings. KNAV works with businesses throughout the entire process:

• Eligibility & Expense Review: We analyse your activities and expenses to determine which qualify under Michigan and federal R&D rules.
• Credit Modelling & Planning: We calculate potential credit amounts and help assess whether additional planning opportunities exist.
• Application Preparation: We assist with preparing and submitting the required R&D Credit Application through MTO.
• Compliance & Documentation: We help ensure proper support is maintained in the event of a future inquiry or review.

Contact us for a confidential discussion to determine whether your business qualifies for the Michigan R&D Tax Credit and how to move forward.