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State program

Minnesota Research and Development Credit

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  • Partly refundable

Last reviewed November 2026

At a glance

  • Jurisdiction: Minnesota (MN)
  • Credit name: Credit for Increasing Research Activities (Minn. Stat. § 290.068)
  • Administering agency: Minnesota Department of Revenue
  • Rate(s) and base:
    • 10% of the first $2,000,000 of Minnesota QREs above the base amount, and 4% of the excess above $2,000,000.
    • The base follows IRC §41(c), with the fixed-base percentage applied to Minnesota sales or gross receipts.
    • The federal alternative simplified method is not allowed.
  • Refundable? Partly, by election, for tax years beginning after December 31, 2024. The refund is a percentage of the current-year credit remaining after tax is reduced to zero:
    • 2025: 19.2%
    • 2026 and 2027: 25%
    • 2028 and later: a rate the Commissioner sets each year, no higher than 25%, aimed at about $25 million of refunds statewide
  • Transferable? No. Within a combined group, the credit may be allocated among members after the member that earned it has used its current-year credit.
  • Carryforward: 15 years. Credit that is neither used nor refunded carries forward, earliest year first.
  • Annual cap / proration: No per-taxpayer or program cap on the credit itself. The refund rate for 2028 and later is set to keep total refunds at about $25 million or less.
  • Pre-approval / application and deadline: None. The refund election must be made on a timely filed return, including extensions, and is irrevocable for that year.
  • Forms: Schedule RD (Credit for Increasing Research Activities), filed with:
    • Form M4 (corporations)
    • Form M1 (individuals)
    • Form M2 (estates and trusts)
    • Pass-through entities report owners' shares on Schedules KPI, KS or KF.
  • Sunset / recent changes: No sunset. Refundability was enacted by the 2025 First Special Session (Laws 2025, 1st Spec. Sess., ch. 13, art. 1, §§ 10–13), effective for tax years beginning after December 31, 2024.

What it is

Minnesota's research credit is a two-tier incremental credit for research performed in Minnesota. It is available to corporations and, through pass-through entities, to individuals, estates and trusts. From tax year 2025, any claimant can elect to have part of the unused current-year credit refunded. This includes C corporations.

Who can claim it

  • Eligible: C corporations, individuals, estates and trusts with QREs for research conducted in Minnesota.
  • Pass-through entities: S corporations and partnerships pass the credit to their owners. For these entities, the refund election is made by the shareholders, partners or members.
  • Not eligible: expenditures funded by Minnesota Innovation Grants.

How it is calculated

  1. Minnesota QREs = IRC §41(b) QREs for research conducted in Minnesota.
  2. Base amount = the federal §41(c) base, computed using Minnesota sales or gross receipts. Taxpayers with QREs but no gross receipts can still claim the credit.
  3. Credit = 10% × (the first $2,000,000 of QREs above the base) + 4% × (QREs above the base in excess of $2,000,000).
  4. Apply the credit against tax after other credits.
  5. If you elect the refund: refund = the year's percentage (19.2% for 2025; 25% for 2026–2027) × the current-year credit remaining after tax is reduced to zero.
  6. The rest carries forward 15 years.

How to claim it

  1. Complete Schedule RD and file it with Form M4, M1 or M2. Pass-through owners use the Schedule KPI, KS or KF amounts.
  2. To get a refund, make the election on a timely filed return, including extensions. The election is irrevocable for that tax year and cannot be made on a late or amended return.
  3. Keep documentation that research was performed in Minnesota, and the gross receipts history used for the base.

Recent changes

  • Laws 2025, 1st Spec. Sess., ch. 13, art. 1, §§ 10–13:
    • created the refund election for tax years beginning after December 31, 2024, at 19.2% (2025), 25% (2026–2027) and a Commissioner-set rate of no more than 25% from 2028;
    • the 2028 and later rate must be set by December 15, 2027 and each year after; and
    • applies to all claimant types.
  • 2026 session: no 2026 session law amended § 290.068. The statute's history ends with Laws 2025, 1st Spec. Sess., ch. 13, art. 1, §§ 10–13.
  • Large-taxpayer directive: the Department generally follows the IRS 2020 directive for eligible large business taxpayers, except the Part II C approval requirement for information requests.

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

  1. Provide Schedule RD and reconcile Minnesota QREs to federal Form 6765.
  2. Show that the research was conducted in Minnesota. Explain how wages, supplies and contract research were sourced.
  3. Provide the fixed-base percentage computation and the Minnesota gross receipts history used for the base.
  4. Show that no Minnesota Innovation Grant–funded expenditures were included.
  5. For refunds, show that the election was made on a timely filed return and that the refund was computed at the correct year's percentage on credit remaining after tax was reduced to zero.
  6. Provide the 15-year carryforward schedule, excluding amounts already refunded.
  7. For combined groups, show how the credit was allocated after the earning member used its current-year credit.

Common weak spots

  • Applying the 10% and 4% rates to total QREs instead of QREs above the base.
  • Using the federal alternative simplified method (not allowed in Minnesota).
  • Refund election made on a late or amended return.
  • Refund computed before other credits reduced tax to zero, or at the wrong year's rate.
  • Refunded amounts also kept in the carryforward balance.
  • Assuming C corporations cannot get refunds. From 2025 they can elect.

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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