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State program

Iowa Research and Development Credit

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  • Refundable
  • Pre-approval required

Last reviewed November 2026

Important change for 2026. Iowa repealed its Research Activities Credit (RAC) and Supplemental Research Activities Credit for tax years beginning on or after January 1, 2026 (Senate File 657, 2025 Iowa Acts, chapter 136, signed June 6, 2025). Research for 2026 and later years is credited only through the Iowa Research and Development Tax Credit Program, administered by the Iowa Economic Development Authority (IEDA). Under that program you must be certified in advance, you apply each year, a CPA must verify the claim, awards are capped statewide, and the credit is claimed on the return for the year after the expenditures. The RAC still applies to tax years beginning in 2025 and earlier. Its Code provisions are fully removed on January 1, 2027.

At a glance

  • Jurisdiction: Iowa (IA)
  • Credit name: Iowa Research and Development Tax Credit Program (Iowa Code §§ 15.521–15.524; 261 IAC chapter 82), for tax years beginning on or after January 1, 2026. For earlier years: the Research Activities Credit (Iowa Code §§ 422.10 and 422.33(5), Code 2025) and the Supplemental Research Activities Credit.
  • Administering agency: IEDA certifies businesses and awards the credit. The Iowa Department of Revenue accepts the credit certificate on the return. The Department of Revenue administered the RAC.
  • Rate(s) and base:
    • 2026 and later: IEDA may award up to 3.5% of eligible Iowa expenditures, which are the Iowa amounts from Section F of federal Form 6765. Awards are prorated within the statewide cap.
    • RAC (tax years before 2026): 6.5% of Iowa QREs above the base under the regular method (IA 128). Under the alternative simplified method (IA 128S) it was 4.55%, or 1.95% if the business had no QREs in any of the three prior years.
  • Refundable? Yes.
    • 2026 program: any credit above Iowa tax is refunded, or credited to the next year's tax if you elect.
    • RAC: the refundable portion of the credit above tax was limited to 90% (2023), 80% (2024) and 70% (2025).
  • Transferable? No. IEDA certificates are not transferable.
  • Carryforward: None. The excess is refunded or, by election, credited to the following year's tax. For the RAC, any excess above the refundable percentage is lost.
  • Annual cap / proration:
    • 2026 program: $40 million statewide per fiscal year, allocated pro rata by each business's share of total eligible expenditures once all applications are received (not first-come, first-served). Up to 5% of the available credits may be awarded as additional credits to businesses that show increased eligible expenditures (Iowa Code § 15.523(5)). The 3.5% rate is a maximum, and proration can lower the effective rate.
    • RAC: no program cap.
  • Pre-approval / application and deadline: Required from 2026. There are two steps:
    • (1) Get certified by IEDA as a qualified business. To claim 2026 research, the certification application had to be filed by September 30, 2026. Later filers qualify starting with tax year 2027.
    • (2) Each year, file a credit application with an independent Iowa CPA verification. It is due January 31 following the most recently filed and accepted federal return. For calendar-year 2026 research, that is January 31, 2028.
  • Forms:
    • 2026 program: IEDA online portal (certification application, annual credit application, CPA verification), then the IEDA certificate claimed on the Iowa return.
    • RAC: IA 128 or IA 128S, plus the IA 148 Tax Credits Schedule, filed with the IA 1040 or IA 1120.
  • Sunset / recent changes: The RAC was repealed for tax years beginning on or after January 1, 2026 (SF 657). The IEDA program applies from tax year 2026 and has no stated sunset.

What it is

From 2026, Iowa supports research through an application-based IEDA program. IEDA certifies businesses in targeted sectors, verifies each year's Iowa research spending with a CPA report, and awards a refundable credit of up to 3.5% of eligible Iowa expenditures. The awards are limited to a $40 million annual statewide pool.

The former Research Activities Credit was a refundable incremental credit modeled on IRC §41. It was claimed directly on the return with no pre-approval. It remains relevant for 2025 and earlier returns, amended returns and examinations.

Who can claim it

2026 and later (IEDA program): a business that IEDA has certified as a qualified business. To be certified, the business must:

  • be primarily engaged in advanced manufacturing, bioscience, insurance and finance, or technology and innovation;
  • conduct the research in Iowa; and
  • sign a contract with IEDA and file annual reports while certified. Certification generally lasts up to five years.

Eligible R&D sectors include:

  • second-generation food innovation, and food ingredients and supplements
  • crop protection and hybrid seed technologies
  • diagnostic analytics and immunotherapies
  • chip technologies and microelectronics
  • medical equipment and supplies
  • software and technology
  • aerospace
  • pharmaceuticals
  • consumer products

These businesses are excluded:

  • businesses primarily engaged in accounting, agricultural production, agricultural cooperatives, architecture, collection, construction or contracting, ethanol biorefining, finance or investment, real estate, retail, transportation or wholesale
  • businesses with a documented pattern of legal or regulatory violations
  • businesses associated with a foreign adversary

For pass-through entities, owners may claim their pro rata share.

RAC (tax years 2017–2025): businesses in manufacturing, life sciences, agriscience, software engineering, or aviation and aerospace that conducted qualified research in Iowa and claimed the federal research credit for the same year. Agricultural producers, agricultural cooperatives, finance and investment companies, retailers, wholesalers, transportation companies, publishers, real estate companies, collection agencies, accountants, architects and certain contractors were ineligible.

How it is calculated

2026 and later

  • Eligible expenditures are the Iowa portion of the QREs reported in Section F of federal Form 6765 on the business's most recently filed and accepted federal return. An independent CPA licensed in Iowa verifies them.
  • IEDA may award up to 3.5% of eligible expenditures. If approved claims exceed $40 million, all awards are reduced proportionally. Up to 5% of the available credits may be set aside for businesses that show increased eligible expenditures.
  • The certificate is claimed in the tax year immediately after the year in which the expenditures were incurred. For example, 2026 research is claimed on the 2027 Iowa return.
  • Any excess over Iowa tax is refunded, or credited to the next year if you elect.
  • A business cannot claim both the RAC and the new credit on the same return.

RAC (tax years beginning before 2026)

  • Regular method (IA 128): 6.5% of Iowa QREs above the federal-style base, with basic research at 6.5%.
  • Alternative simplified method (IA 128S): 4.55% of Iowa QREs above 50% of the prior three-year average, or 1.95% if the business had no QREs in any of the three prior years.
  • The method had to match the federal method.
  • Rules for tax years beginning on or after January 1, 2023:
    • Supplies counted at only 80% (2023), 60% (2024) and 40% (2025).
    • The refundable share of credit above tax was limited to 90% (2023), 80% (2024) and 70% (2025).
    • The credit had to be claimed on a timely filed return, including extensions. An increase on an amended return was allowed only if filed within six months of the extended due date, or if it resulted from an audit.
  • Supplemental RAC (repealed for 2026): businesses with High Quality Jobs or Enterprise Zone awards could receive up to an additional 10% (gross revenue under $20 million) or 3% (otherwise) of incremental Iowa research.

How to claim it

2026 and later

  1. Apply for certification as a qualified business through the IEDA online portal. To claim 2026 research, the deadline was September 30, 2026. Paper and PDF submissions are not accepted.
  2. File your federal return claiming the §41 credit, with Section F of Form 6765 completed.
  3. Hire an independent Iowa CPA to perform the IEDA-prescribed verification procedures.
  4. Submit the annual credit application with the CPA verification in the IEDA portal by January 31 following the most recently filed and accepted federal return. For 2026 calendar-year research, file the application by January 31, 2028.
  5. After the IEDA Director approves the award and the pro rata allocation, IEDA issues a tax credit certificate. Claim it on the Iowa return for the year following the expenditure year.
  6. Notify IEDA of post-award changes, such as a reduced federal credit or facility closures or layoffs affecting Iowa R&D. Recapture provisions apply.

RAC (2025 and earlier): file IA 128 (regular) or IA 128S (ASC), plus the IA 148 Tax Credits Schedule, with a timely filed IA 1040 or IA 1120, including extensions.

Recent changes

  • SF 657 (2025 Iowa Acts, ch. 136), signed June 6, 2025:
    • Repealed the RAC and Supplemental RAC for tax years beginning on or after January 1, 2026, with full removal of the Code provisions on January 1, 2027.
    • Created the IEDA Research and Development Tax Credit Program (Iowa Code §§ 15.521–15.524): up to 3.5%, a $40 million annual cap with pro rata allocation, IEDA certification, annual applications with CPA verification, refundable, not transferable.
    • Replaced the High Quality Jobs program with the Business Incentives for Growth (BIG) program.
  • IEDA implementation (2026): 261 IAC chapter 82 adopted. Certification applications for tax year 2026 were due September 30, 2026. IEDA's FAQ confirms that the credit application for 2026 research is filed in 2028.
  • HF 2317 (2022), effective for tax years beginning on or after January 1, 2023:
    • phased out supplies;
    • limited the refundable portion (90% for 2023, down to 70% for 2025); and
    • required that the credit be claimed on a timely filed return.

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 Iowa and other locations, how Iowa amounts reconcile to federal Form 6765, the Iowa credit and carryforward schedule for each year claimed, and whether the claiming entity is the one subject to Iowa tax.

  1. (2026+) Provide the IEDA certification approval and contract, and show that the business is primarily engaged in an eligible industry and that the research falls in an eligible sector.
  2. (2026+) Provide the IEDA tax credit certificate and show that the credit claimed equals the certificate and was claimed in the year after the expenditure year.
  3. (2026+) Provide the CPA verification report and reconcile eligible Iowa expenditures to Section F of the accepted federal Form 6765.
  4. (2026+) Report any post-award reduction to the federal credit, or Iowa facility closures or workforce reductions.
  5. (RAC years) Provide IA 128 or IA 128S and IA 148, and show that the calculation method matches the federal method and that the federal credit was claimed for the same year.
  6. (RAC years) Show that the business was in an eligible industry and that the research was performed in Iowa.
  7. (RAC 2023–2025) Show the supply phase-out percentage applied and that the refund did not exceed the refundable-portion limit for that year.
  8. (RAC 2023–2025) If the credit was increased on an amended return, show it was filed within six months of the extended due date or resulted from an audit.

Common weak spots

  • Assuming the old RAC still applies to 2026, or missing the September 30 certification deadline for the first year.
  • Missing the January 31 IEDA credit application, or applying without a compliant CPA verification.
  • Modelling the benefit at a flat 3.5% without allowing for proration under the $40 million cap.
  • Claiming the IEDA credit in the expenditure year instead of the following year.
  • (RAC) Refund claimed above the refundable-portion limit, supplies counted at 100%, or a credit increase on a late amended return.
  • Research performed outside Iowa included in Iowa expenditures.

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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