On January 13, 2025, Michigan Governor Gretchen Whitmer signed legislation enacting a Research and Development (R&D) tax credit and Innovation Fund for businesses across the state. Michigan businesses have not been able to claim a tax credit for R&D activities since 2012. This bipartisan initiative is aimed at fostering innovation, supporting job growth, and making Michigan an even more attractive place for cutting-edge industries to thrive.
Here’s a breakdown of what you need to know about this exciting development:
What is the Michigan R&D Tax Credit?
The R&D tax credit is designed to reward businesses conducting qualified research activities (QRAs) within Michigan. Whether you’re a small startup tinkering with new ideas or a larger organization investing heavily in innovation, this credit could provide a meaningful boost to your finances. The credit is also refundable, which means taxpayers can receive savings from the entire credit amount, even if their Michigan tax due is less than the amount of the credit.
The Michigan Innovation Fund
The Michigan Innovation Fund aims to attract businesses to Michigan with $60 million allocated to innovation efforts in the state. The Innovation Fund will support entrepreneurs and startup companies that might encounter difficulties finding early-stage capital. The Innovation Fund aims to expand Michigan's talent pool and drive economic growth by supporting struggling businesses, equipping job creators with critical resources, and drawing fresh talent and innovative ideas to the state.
How Does it Work?
The credit offers two tiers of benefits, based on the size of your business:
- For Larger Businesses (250+ employees):
- A 3% credit on Qualified Research Expenditures (QREs) up to a base amount, in addition to;
- A 10% credit on QREs exceeding the base amount, with total credits capped at $2 million per year.
- For Small Businesses (fewer than 250 employees):
- A 3% credit on QREs up to a base amount, in addition to;
- A 15% credit on QREs exceeding the base amount, with total credits capped at $250,000 per year.
Additional Benefits for Collaboration
If your business partners with a Michigan research university, you can receive an additional 5% credit, capped at $200,000. This collaboration incentive encourages companies to work closely with local academic institutions to drive innovation.
Annual Program Cap
To ensure broad access to these benefits, the program has an annual cap of $100 million, with $25 million specifically reserved for small businesses. This makes it essential to act quickly and plan your R&D activities strategically to maximize your potential credit.
When Does it Start?
The Michigan R&D tax credit applies to tax years beginning on or after January 1, 2025. Now is the perfect time to assess your business’s eligibility and plan ahead to take full advantage of this opportunity.
How We Can Help
At ABGi USA, we specialize in identifying and securing R&D tax credits for businesses like yours. With decades of experience and a deep understanding of federal and state incentives, we simplify the process so you can focus on what you do best: driving innovation. Our team provides tailored support to:
- Identify Eligible Activities: We’ll work closely with you to uncover all qualifying research activities and expenditures.
- Maximize Your Credit: From calculating QREs to understanding collaboration incentives, we’ll ensure you claim the full benefit available.
- Streamline Documentation: Compliance is key. Our experts help you gather and organize the documentation needed to substantiate your claim with confidence.
- Audit Defense/Assurance: Claim the credit with peace of mind. All work includes audit defense services to take on any questions asked by state tax departments.
Let's Get Started
ABGi USA is your partner in unlocking the full potential of the Michigan R&D tax credit. If you plan to take advantage of this new opportunity for the 2025 tax year, contact us today to develop a documentation strategy and maximize your savings.
