The Bottom Line
Iowa replaced its current research and development (R&D) tax credit program for tax years beginning on or after January 1, 2026, under Iowa Senate File 657 (SF 657). Under the new framework, the Iowa R&D tax credit will be application-based and restricted to qualified businesses as certified by the Iowa Economic Development Authority (IEDA), operating in specific industries and sectors. The new Iowa R&D tax credit program is only available to businesses engaged in bioscience, advanced manufacturing, insurance and finance, or technology and innovation within sectors including second-generation food innovation, food ingredients and supplements, crop protection, hybrid seed technologies, diagnostic analytics and immunotherapies, chip technologies and microelectronics, medical equipment and supplies, software and technology, aerospace, pharmaceuticals, and consumer products.
Under SF 657, the IEDA may award businesses annually with a R&D tax credit for up to 3.5% of qualified expenditures incurred within Iowa from a statewide funding pool capped at $40 million. The credit must be claimed in the subsequent tax year following the tax year in which the qualifying expenditures were incurred. The portion of the R&D tax credit that exceeds a business’s tax liability is refundable or creditable to the following year, and the IEDA may recapture or deny credits due to reductions in the federal R&D tax credit, facility closures, or workforce reductions.
The annual credit application will require significantly more qualified research expense supporting detail by business entity, expense type, and business component, as well as qualified wages by employee and qualified supplies, contract research, and computer rental costs by account and vendor. In addition, a key change requires that each annual credit application includes a verification report of eligible Iowa R&D expenditures by an independent Certified Public Accountant.
How We Can Help
Taxpayers intending to claim the Iowa R&D tax credit for tax year 2026 should evaluate eligibility, documentation practices, and readiness to meet the new Iowa R&D tax credit framework and application requirements.
At Forvis Mazars, our nationwide team of engineers, accountants, and attorneys are ready to help you calculate, document, and substantiate your R&D tax credits, and reach out to a member of our team to learn more about how we can help.