On January 13, 2025, Michigan Gov. Gretchen Whitmer signed House Bill (HB) 5100 and HB 5101 into law, establishing a refundable research and development (R&D) tax credit. Effective for tax years beginning on or after January 1, 2025, the credit applies to the state’s corporate income tax and withholding tax for flow-through entities.
Credit Overview
The credit is available to authorized businesses, including corporations, insurance companies, financial institutions, unitary business groups, and flow-through entities with increased qualifying R&D expenses. The R&D activities for the purposes of this credit must take place in Michigan.
For large businesses (250 or more employees), the credit is 3% of qualifying expenses up to a base amount and 10% of expenses exceeding the base amount. There is an annual cap of $2 million of credits that large businesses can claim.
Small businesses (fewer than 250 employees) may claim a 3% credit up to the base amount and 15% for expenses above it, with an annual cap of $250,000.
In addition, taxpayers collaborating with Michigan research universities are eligible for an extra 5% credit, capped at $200,000 per year. However, this additional credit amount is still subject to the limitations previously noted for large and small businesses.
Refunds are available if the credit exceeds the taxpayer’s liability, and the total aggregate credit for all state claimants is capped at $100 million annually.
Claiming the Credit
Taxpayers must submit—in the form and manner prescribed by the Michigan Department of Treasury—the required forms to apply for a tentative claim for the R&D credit to the state by April 1, 2026 for expenses incurred in the 2025 tax year. For subsequent years, the deadline moves to March 15.
If the total of all tentative claims applied for exceeds the statewide $100 million cap, credits will be prorated in one of three methods:
- Small businesses are protected from proration if the statewide total claims for small businesses are $25 million or less.
- Small business claims are prorated if the statewide total claims for small businesses exceed $25 million, so that each claimant is allowed a pro rata share of $25 million. Large businesses will then each get a pro rata share of the remaining $75 million of the $100 million annual allotment.
- If statewide total claims for small businesses exceed 25% of all claims, for both small and large businesses, then all businesses will receive a pro rata share of the $100 million total.
The awarded R&D credit must then be included on the taxpayer’s annual return in the year the credit is claimed. The credit is claimed after all other nonrefundable credits have been claimed.
A credit allowed under this new law is not assignable or transferable.
Considerations
Businesses should note that credit awards may be lower than expected due to the aggregate cap and proration rules. In addition, taxpayers claiming the federal R&D credit under Internal Revenue Code Section 41 can leverage the same data to identify qualifying expenses and calculate the Michigan credit. Finally, claimants should be aware that their business name and credit amount will be publicly disclosed in an annual legislative report.
Tax professionals at Forvis Mazars can assist your company in identifying and claiming these R&D credits. Please reach out to us for guidance and support.