Michigan Reintroduces a Refundable R&D Tax Credit: Key Deadlines

Summary: Michigan has reintroduced a refundable R&D tax credit for the 2025 tax year for businesses conducting qualifying research in Michigan. Eligible taxpayers must apply through Michigan Treasury Online by April 1, 2026 (no extensions). The credit is subject to a $100 million statewide cap and possible proration.

As businesses prepare for their 2025 tax filings, those operating in Michigan should note that, for the first time in more than a decade, the state is offering an income tax credit for research and development (R&D) activities conducted within Michigan.

Businesses that perform research in Michigan may qualify for the refundable credit. It’s important to note the application for the 2025 tax year has an April 1, 2026, deadline.

Who Is Eligible?

The credit is generally available to corporate income tax (CIT) and withholding tax filers who perform research within Michigan. Research eligibility is based on the federal definition, with the additional requirement that the work be performed in Michigan.

Additionally, to qualify for the credit, the taxpayer’s expenses must be more than their base amount, which is calculated as the total of the Michigan qualified research expenses (QRE) for the prior three calendar years divided by the number of years with Michigan QREs.

How Is the Credit Calculated?¹

The calculation mechanics depends on the number of employees within the business.

Companies With Fewer Than 250 Employees

The credit is calculated as follows with an overall limit of $250,000:

• 3% of R&D expenses up to their base amount, PLUS
• 15% of R&D expenses above their base amount

Companies With More Than 250 Employees

The credit is calculated as follows with an overall limit of $1,000,000:

• 3% of R&D expenses up to their base amount, PLUS
• 10% of R&D expenses above their base amount

The calculations above calculate the unadjusted credit amount. The state has instituted a $100 million cap. To the extent that the claims exceed the cap, a statutory pro-ration process applies to reduce the allowed credit for all or certain claimants.

Fiscal year taxpayers should note that the credit calculation must be performed on a calendar year basis regardless of a fiscal year.

How To Claim the Credit

1. Apply for the Credit
   Taxpayers must file the R&D Credit Application with the unadjusted credit amount through Michigan Treasury Online (MTO). The application for the 2025 tax year opened on January 1 and all claimants, regardless of taxpayer classification, must have their initial application submitted by the April 1, 2026, deadline. The application deadline for all subsequent years is March 15.
2. Pro-ration Adjustment (if applicable)
   After the application deadline is closed, Michigan’s Treasury Department will assess all the applications submitted. If the claims total over the $100 million cap, then the Michigan Treasury Department will implement statutory proration provisions  and publish such notification on its website.
3. Claiming the Credit
   Once the Michigan Treasury Department has implemented the pro-ration provisions, taxpayers should apply the adjustment rate (if applicable) to their unadjusted tentative credit amount. They will then report that amount of the adjusted credit on their tax return. If the amount of the credit exceeds the tax or withholding, the credit is refundable.

Next Steps for Michigan Taxpayers

Companies with research activities in Michigan should take note of this new opportunity. It is important to be aware of the April 1, 2026 application due date as there are no extensions. This may require some taxpayers to begin gathering their credit information earlier than normal.

For additional questions about qualifying for the credit, or more information about the credit itself, reach out to your KSM advisor or complete the form below.

¹If the research completed was done in collaboration with a Michigan research university that has a written agreement, special provisions apply.