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State program

Michigan Research and Development Credit

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  • Refundable
  • Pre-approval required

Last reviewed November 2026

At a glance

  • Jurisdiction: Michigan (MI)
  • Credit name: Michigan Research and Development Credit (MCL 206.677 for Corporate Income Tax claimants; MCL 206.717 for withholding claimants; Public Acts 186 and 187 of 2024)
  • Administering agency: Michigan Department of Treasury
  • Rate(s) and base: The base is the average annual Michigan QREs for the three preceding calendar years. Rates depend on employer size:
    • Fewer than 250 employees: 3% of Michigan QREs up to the base plus 15% of QREs above the base, capped at $250,000.
    • 250 or more employees: 3% up to the base plus 10% above the base, capped at $2,000,000.
    • Research university add-on: 5% of QREs under a written agreement with a Michigan research university, capped at $200,000.
    • Only claimants with current-year QREs above the base are eligible.
  • Refundable? Yes. It applies after all nonrefundable credits, and any excess is refunded.
  • Transferable? No. The credit cannot be assigned or transferred.
  • Carryforward: None. The excess is refunded.
  • Annual cap / proration: $100 million statewide per calendar year of expenses. When claims exceed the cap, Treasury prorates, with $25 million earmarked for small employers in some scenarios. For 2025 expenses, Treasury allowed 50.96% of tentative claims for large employers and 59.88% for small employers (proration notice, April 24, 2026).
  • Pre-approval / application and deadline: A tentative claim is required. Treasury must receive it by March 15 of the year after the calendar year in which the expenses were incurred (March 15, 2027 for 2026 expenses; the 2025 deadline was April 1, 2026). It must use actual amounts. Late tentative claims are not accepted.
  • Forms:
    • Tentative claim, filed in the manner Treasury prescribes
    • Corporate Income Tax claimants: the CIT annual return (Form 4891, 4905 or 4908)
    • Flow-through entities: the annual withholding return (Form 5081)
  • Sunset / recent changes: New credit for tax years beginning on or after January 1, 2025 (PA 186 and 187 of 2024). Treasury issued Revenue Administrative Bulletin (RAB) 2026-4 on March 26, 2026, and the first proration notice on April 24, 2026. No statutory sunset.

What it is

Michigan reinstated a refundable research credit starting with 2025 expenses. Claimants file a tentative claim early in the following year. Treasury then compares total claims with the $100 million annual cap and publishes a proration notice. Claimants report the prorated amount on their annual return.

Who can claim it

  • Corporate Income Tax taxpayers with Michigan QREs above their base. A unitary business group is treated as one taxpayer, and all calculations are made at group level.
  • Flow-through entities that are employers subject to Michigan withholding but not to the Corporate Income Tax or the Michigan Business Tax. These include S corporations, partnerships, LLPs and LLCs not taxed as corporations. They claim the credit against withholding tax.
  • Excluded:
    • members of a flow-through entity;
    • disregarded entities;
    • entities that are not federal employers; and
    • individuals claiming against personal income tax.
  • Employee count: based on IRC §3401(c), tested at any point in time. If you had 250 or more employees at any point in the year, the large-employer rates and cap apply. Unitary groups combine their employee counts.
  • Federal credit not required: you do not have to claim the federal §41 credit. QREs follow IRC §41(b), but only research performed in Michigan counts, and contract research generally counts at 65%.

How it is calculated

  1. Michigan QREs = IRC §41(b) QREs for research physically performed in Michigan, on a calendar-year basis. Use actual amounts; statistical sampling is not allowed.
  2. Base = average annual Michigan QREs for the three preceding calendar years. Years with no QREs are excluded from the denominator. Fiscal-year filers may convert prior fiscal-year data, but only for base years before 2025 and only for credits based on 2025–2027 QREs. From 2025 on, Michigan QREs must be tracked by calendar year.
  3. Tentative credit:
    • Small employers: 3% × (QREs up to the base) + 15% × (QREs above the base), up to $250,000.
    • Large employers: 3% × (QREs up to the base) + 10% × (QREs above the base), up to $2,000,000.
    • Plus 5% of research-university collaboration QREs, up to $200,000.
  4. Allowed credit = tentative credit × Treasury's proration percentage for that year and employer size.

How to claim it

  1. File the tentative claim with Treasury by March 15 of the following year (April 1, 2026 for 2025 expenses). It must include:
    • the unadjusted credit amount;
    • small or large employer status;
    • Michigan QREs and the three prior years' QREs;
    • the research university add-on;
    • the tax type;
    • the employee count; and
    • a certification under penalty of perjury.
      You may amend it before the deadline.
  2. Wait for Treasury's proration notice. Apply the published percentage to your tentative claim. If your claim was too high, apply it to the corrected lower amount. If it was too low, you cannot increase it.
  3. Claim the allowed credit:
    • CIT taxpayers: on the CIT annual return (Form 4891, 4905 or 4908) for the tax year in which the calendar expense year ends. For calendar-year filers, that is the same year.
    • Flow-through employers: on the annual withholding return (Form 5081) for the year in which the tentative claim was filed. For 2025 expenses, that is the 2026 Form 5081, due February 28, 2027. After Treasury's notice, flow-through employers may reduce interim withholding payments.

Recent changes

  • Public Acts 186 and 187 of 2024 (HB 5100 and HB 5101), approved by the Governor January 13, 2025 and effective April 2, 2025: created the credit for tax years beginning on or after January 1, 2025.
  • Treasury notice (April 2, 2025): initial guidance.
  • RAB 2026-4 (March 26, 2026): detailed rules on eligibility, employee counting, unitary groups, base computation, fiscal-year conversions, tentative claims and record keeping.
  • Proration notice (April 24, 2026): 2025 claims exceeded $100 million. Allowed percentages are 50.96% for large employers and 59.88% for small employers.
  • 2025–2026 legislation: MCL 206.677 shows only its 2024 enactment (2024 PA 186, effective April 2, 2025). No later public act has amended the credit.

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

  1. Provide the timely tentative claim and show that the credit on the return equals the tentative claim (or the corrected lower amount) times Treasury's proration percentage.
  2. Provide the IRC §3401(c) employee count supporting the small or large employer tier, including all unitary group members and any point-in-time peak.
  3. Show that Michigan QREs relate to research physically performed in Michigan, and reconcile them to payroll, the general ledger and Form 6765.
  4. Provide calendar-year Michigan QREs for the three base years, and any fiscal-year conversion used.
  5. For the university add-on, provide the written agreement with the Michigan research university and the related expenses.
  6. For unitary groups, show that intra-group service charges were eliminated and that membership changes were prorated in the base.
  7. For flow-through entities, show that the entity (not its members) claimed the credit on Form 5081 for the correct year.

Common weak spots

  • Missing the March 15 tentative claim deadline (April 1 for 2025). The credit is lost.
  • Claiming the full tentative amount instead of the prorated allowance.
  • Wrong employer tier from counting only Michigan employees or ignoring unitary group members.
  • Base computed on fiscal years or using federal base rules.
  • Flow-through members claiming the credit on individual returns.
  • Estimated or sampled QREs in the tentative claim.

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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