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RESEARCH AND DEVELOPMENT TAX CREDIT

Michigan R&D Tax Credit Guide for 2025 to Reduce State and Federal Taxes

Discover how your Michigan business can qualify for federal R&D tax credits and receive cash back for innovation, design, and technical work.
Start Your Free EstimateSee What Qualifies in Michigan

About R&D Tax Credit

The IRS and State of Michigan both reward companies developing or improving products, processes, software, and designs. No patents required. If your team is solving technical problems, you likely qualify.

What Industries Qualify?

Software & SaaS
Manufacturing
Architecture
Engineering
Oil & Gas
Healthcare
Food & Beverage
Electronics
Aerospace

2025 R&D Tax Credit Enhancements at a Glance

How the Michigan R&D Tax Credit Impacts Your Bottom Line

Reduce Federal & Michigan Taxes
Save on every eligible dollar you spend.
Use qualified R&D expenses to lower your federal income tax burden—even if you didn’t claim the credit in past years or weren’t aware your work qualified for these valuable incentives.
Receive Credits for Past Work
Retroactive credits = surprise cash.
You can claim the R&D tax credit for the last three open tax years, unlocking valuable working capital from prior product, software, or process improvements your team completed across multiple projects.
Enhanced Benefits
New rules bring faster R&D savings.
‍Starting in 2025, businesses can fully deduct U.S. R&D costs again. Small firms under $31M may also claim retroactive refunds for 2022–2024, while larger companies can accelerate deductions.

Who Qualifies and How the R&D Tax Credit Works

What Activities and Expenses Qualify?
The R&D tax credit applies to a wide range of technical work, even if it doesn’t involve white lab coats or patent filings. Qualifying activities include developing or improving products, manufacturing processes, software systems, formulas, or techniques. Common examples include prototyping, testing different materials or configurations, customizing internal software, or addressing performance and functionality challenges.
Eligible expenses include wages paid to U.S.-based employees who directly participate in, support, or supervise qualified R&D work. Payments to U.S. contractors can also count, along with the cost of supplies consumed in the development process and cloud computing costs related to software development. If your team engages in trial-and-error problem-solving or system improvements, chances are you’re already doing qualifying R&D without realizing it.
Who Can Claim the R&D Tax Credit?
Virtually any U.S. business that performs qualified research activities can claim the credit—regardless of size or industry. This includes startups building new software tools, engineering firms optimizing energy systems, manufacturers improving equipment or assembly lines, architects designing sustainable buildings, and even food producers experimenting with new recipes or packaging methods.
Startups with less than $5 million in gross receipts can use the credit to offset up to $500,000 in payroll taxes annually, even if they have no income tax liability. Larger companies can reduce federal income tax and, in many cases, file amended returns to claim refunds from the past three years. Recent legislation also restored full expensing of R&D costs starting in 2025 and added retroactive relief for small businesses—making the credit more valuable than ever.

Recent R&D Tax Credit Projects
We've Delivered

Artificial Intelligence
AI-driven development for optimizing energy markets to accelerate renewable power adoption.
R&D Tax Credit Delivered: $1,150,000
Industrial Manufacturing
Advanced robotics engineered for scalable automation in industrial manufacturing environments.
R&D Tax Credit Delivered: $340,000
Software Development
Development of an online platform enabling seamless cross-border donations for charitable causes.
R&D Tax Credit Delivered: $185,000
BioScience Technology
Innovated medical technology advancing minimally invasive treatments for vascular diseases.
R&D Tax Credit Delivered: $710,000
Defense Technology
Developing AI-enabled autonomous systems designed to optimize operations in industrial defense.
R&D Tax Credit Delivered: $165,000
Hardware Engineering
Developed precision-engineered robotic hardware enabling complex, fluid, and repeatable camera movements.
R&D Tax Credit Delivered: $92,000

Don’t Miss the Michigan State-Level Incentives

Michigan R&D Tax Credit: How to Maximize Both State and Federal Benefits

In addition to the federal R&D tax credit, Michigan offers a valuable state-level incentive for qualifying businesses that conduct research activities within the state. When leveraged together, these programs can significantly reduce both income and franchise tax liability. If your company is innovating in Michigan, you could be eligible for a double benefit.

How the Michigan R&D Tax Credit Works
‍

Michigan reinstated its state-level R&D tax credit effective for tax years beginning January 1, 2025, aiming to boost innovation and competitiveness within the state.


Credit Structure:

  • For businesses with fewer than 250 employees:
    • 3% of qualified R&D expenses (QREs) up to the base amount (defined as the average of the prior three years)
    • 15% on QREs above the base amount
    • Credit cap: $250,000 per taxpayer‍
  • For businesses with 250 or more employees:
    • 3% up to the base amount
    • 10% above the base amount
    • Credit cap: $2,000,000 per taxpayer


University Collaboration Bonus:

  • An additional 5% credit is available for QREs performed in collaboration with a Michigan research university under a formal agreement—capped at $200,000 per taxpayer per year

Program Caps & Filing Deadlines:

  • The state-wide R&D credit pool is capped at $100 million annually, with $25 million reserved for small businesses. If total claims exceed this, credits are allocated via a prorated method.
  • A tentative claim must be filed by April 1, 2026 for calendar year 2025 expenses. For subsequent years, the deadline will be March 15 of the following year.
  • The credit is refundable, meaning excess credit beyond tax liability is returned to the taxpayer.

Strategic Value:
‍
Michigan’s new credit incentivizes companies to conduct R&D in-state and reward sustained incremental investment. Smaller companies benefit from higher marginal rates and refunds; larger organizations benefit from higher caps and structured base amounts.

Frequently Asked Questions

Talk to an expert. No hard sell, ever. We only want to work with you if it's a fit.
What changed for the R&D tax credit in 2025 under the One Big Beautiful Bill?

Starting in tax year 2025, businesses can now immediately deduct domestic R&D expenses in the year they occur instead of spreading deductions over five years. The bill also offers refund opportunities for small businesses and faster deduction schedules for larger companies.

How does the new law benefit small businesses and startups?

If your business has $31 million or less in annual gross receipts, you may be able to:

File amended returns for 2022–2024 to get cash refunds for previously capitalized R&D costs

Deduct remaining unamortized R&D expenses faster starting in 2025

Apply your R&D credit against payroll taxes—up to $500,000 per year for qualifying startups

Can I recover R&D costs from previous years?

Yes. Eligible small businesses can retroactively deduct R&D costs from 2022–2024 and claim refunds. Even larger companies can accelerate the deduction of past R&D costs over one or two years starting in 2025.

Do the changes apply to foreign R&D activities?

No. The 15-year amortization rule for foreign R&D remains in place. The new immediate expensing option only applies to U.S.-based research and development.

How much can my company save with the updated R&D tax rules?

Savings vary, but many businesses may recover hundreds of thousands of dollars through a combination of:

Full expensing of domestic R&D costs

Retroactive refunds for 2022–2024

Annual R&D tax credits (often worth 5–10% of qualifying expenses)

How can my startup benefit if we’re not yet profitable?

Startups with less than $5 million in annual revenue can use the R&D credit to offset payroll taxes—up to $500,000 per year—resulting in quarterly cash refunds, even without taxable income.

When should I review my R&D tax credit strategy?

Work with our expert team at TaxTaker. We help innovative companies like yours identify, document, and claim the maximum R&D tax credit available—while ensuring you stay fully compliant with IRS requirements. Our team specializes in both federal and state R&D tax credits, and we know how to uncover hidden value by reviewing past filings for potential refund opportunities. With the new 2025 rules in place, we’ll build a tailored strategy that maximizes your savings now and in the years ahead. That’s why businesses across the country trust TaxTaker to deliver results they can count on.

Who should I work with to maximize my R&D tax credit savings?

Working with TaxTaker is risk free. TaxTaker collects a success fee only if you qualify for a tax credit.

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