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State program

Illinois Research and Development Credit

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Last reviewed November 2026

At a glance

  • Jurisdiction: Illinois (IL)
  • Credit name: Research and Development Credit (35 ILCS 5/201(k); 86 Ill. Adm. Code 100.2160).
  • Administering agency: Illinois Department of Revenue (IDOR).
  • Rate(s) and base: 6.5% of Illinois qualifying expenditures for increasing research activities above the average of the three preceding taxable years (years with no expenditures count as zero; partial years are annualized).
  • Refundable? No.
  • Transferable? No. Partnerships and S corporations pass the credit to owners.
  • Carryforward: 5 years after the year the credit arose, then forfeited. Oldest credits are used first.
  • Annual cap / proration: No program cap. For tax years ending on or after December 31, 2021 and before December 31, 2024, business credits (including this one) were limited to $5 million per taxpayer per year under P.A. 102-0016, with the carryforward of disallowed credits extended.
  • Pre-approval / application and deadline: Not required. Claimed on the return.
  • Forms: Schedule 1299-D (corporations, fiduciaries, exempt organizations) or Schedule 1299-C (individuals), with the Schedule 1299-I worksheet; credit code 5340. Pass-through shares reported on Schedule K-1-P.
  • Sunset / recent changes: Extended to tax years ending before January 1, 2037 by SB 3019 (Pub. Act 104-0468, signed June 16, 2026). Previously tax years ending before January 1, 2032 (P.A. 103-0595, 2024).

What it is

Illinois allows a credit for increasing research activities conducted in Illinois, using federal IRC § 41 definitions of qualified research. The credit rewards spending above a rolling three-year average and has been extended repeatedly; the 2026 budget extended it another five years.

Who can claim it

Corporations, individuals (including sole proprietors), trusts and pass-through entities with Illinois qualifying research expenditures above the three-year average. Partners and S corporation shareholders receive the credit under IRC §§ 702 and 704 and Subchapter S rules.

How it is calculated

  1. Identify Illinois qualifying expenditures for research conducted in Illinois (IRC § 41(b) and (d) definitions).
  2. Compute the base: the average of Illinois qualifying expenditures for the three immediately preceding taxable years.
  3. Credit = 6.5% × (current-year expenditures − base).
  4. Apply against Illinois income tax (not replacement tax). Carry any excess forward up to 5 years.

How to claim it

  1. Complete Schedule 1299-I and report credit code 5340 on Schedule 1299-D (or 1299-C for individuals).
  2. Pass-through entities report each owner's share on Schedule K-1-P.
  3. Keep base-period records for each of the three preceding years.

Recent changes

  • SB 3019 (Pub. Act 104-0468), signed June 16, 2026: Extends the credit to tax years ending before January 1, 2037. No other change to the credit computation.
  • P.A. 103-0595 (HB 5005), June 2024: Extended the credit to tax years ending before January 1, 2032.
  • P.A. 102-0016 (2021): Temporary $5 million annual limit on business credits for tax years ending on or after December 31, 2021 and before December 31, 2024, with an extended carryforward for disallowed amounts. This still matters for carryforward schedules from those years.

Likely examiner questions

These questions illustrate what an examiner may ask about this credit. They are drafts for illustration and should be reviewed by a specialist before use. Most state claims also face standard questions: where the research was physically performed, how wages, supplies and contract research were apportioned between Illinois and other locations, how Illinois amounts reconcile to federal Form 6765, the Illinois credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Illinois tax.

  1. Show that each activity was performed in Illinois.
  2. Provide Illinois qualifying expenditures for the current year and each of the three base years.
  3. Reconcile Illinois expenditures to federal Form 6765.
  4. Provide the carryforward schedule by year, including any credits limited under the 2021–2024 $5 million rule and their extended periods.
  5. For pass-through credits, provide the K-1-P allocation.
  6. Confirm the credit was applied only against income tax and not personal property replacement tax.

Common weak spots

  • Base computed from a single prior year instead of the three-year average.
  • Out-of-state research included.
  • Carryforwards used after the 5-year expiry.
  • The 2021–2024 $5 million limitation and extended carryforward not tracked.
  • Relying on an outdated sunset date when planning multi-year claims.

Next steps

Important

This page is general information, not tax advice. Rules change; confirm current requirements with the state revenue agency or a qualified tax professional. creditARMOR is a free service. Passing this mock audit does not guarantee that your claim will pass an IRS or state examination. If needed, Swanson Reed can assist you with representation before the IRS. creditARMOR and TaxTrex are products of Swanson Reed.

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