Author:
R&D Tax Advisors
Role:
CPAs
Publish Date:
Dec 22, 2025
The Question
“We have engineers in Iowa. Should we still bother with Iowa’s R&D credit after the 2026 changes?”
If you’ve claimed (or planned to claim) Iowa’s old Research Activities Credit, the rules starting in 2026 are a real shift in posture. Iowa is moving away from a more automatic, formula-driven credit and toward a capped, application-based program run through the Iowa Economic Development Authority (IEDA).
That means two things can be true at the same time:
The credit can still be valuable.
It will be harder to get, less predictable, and more work to maintain.
The Short Answer
Iowa’s new 2026 R&D credit can be worth it if you’re in the right industry bucket, have meaningful Iowa-based QREs, and the expected benefit justifies the ongoing admin burden.
It’s often not worth it if your Iowa footprint is small, your documentation is thin, or you’re in an industry Iowa is explicitly excluding.
The key change isn’t the math. It’s the structure: Iowa is turning the credit into something closer to a grant-style program, with certification, annual reapplication, and a limited pool of credits.
The Deep Dive
1) What changed starting in 2026
Under Senate File 657 (signed June 6, 2025), Iowa replaces the long-standing Research Activities Credit with a new R&D tax credit program for tax years beginning on or after January 1, 2026.
The program’s headline features are:
Capped statewide pool: credits are allocated out of an annual pool capped at $40 million, and awards are allocated pro rata if demand exceeds supply.
Lower headline rate: up to 3.5% of qualifying in-state QREs (RSM notes this is reduced from the prior 6.5% structure).
Application + certification: companies must apply, and QREs must be CPA-verified as part of the process.
Industry targeting: eligibility is narrowed to specific sectors Iowa wants to incentivize.
Ongoing reapplication: credits can be secured for up to five consecutive years, but with annual reapplication and certification.
Refundable, but non-transferable: still refundable, but Iowa removes transferability (which matters for planning).
If you’re used to “we qualify → we calculate → we file,” this is different. The timing and certainty now depend on an administrative process and a capped pool.
2) The big gate: who can qualify now
Iowa is no longer trying to subsidize “R&D broadly.” It’s trying to subsidize R&D in industries it considers strategic.
Eligibility is restricted to targeted sectors such as advanced manufacturing, bioscience, finance/insurance, and technology/innovation, and the law explicitly excludes several categories (for example, real estate, construction, retail/wholesale are called out as excluded in common summaries of the change).
So a software company doing real product development in Iowa may still fit cleanly under “technology/innovation.”
But if your business is adjacent to excluded categories, or you have only light development in Iowa, you should assume the state’s answer might be: not what we’re trying to subsidize anymore.
3) The hidden cost: “grant-style” admin burden
This is where ROI can fall apart.
Even if the credit is refundable, the program’s design creates new friction:
You’re applying to an agency, not just claiming on a return.
Your QRE computation has to survive CPA verification standards.
Credits come from a statewide pool, which injects uncertainty into the amount you’ll actually receive.
You’re not doing this once—you’re doing it annually if you want the benefit to be repeatable.
For companies with small Iowa teams, the credit might be real but the admin cost can quietly eat it.
4) When it’s still worth it
This new Iowa program tends to make sense when a company has all three of these:
Meaningful Iowa-based R&D spend
If Iowa payroll is real (not a handful of engineers), the math can start to justify the effort.
A clean story with strong documentation
Because QREs are CPA-verified and the program is more controlled, “retroactive estimates” and vague narratives are more likely to break down.
Patience with timing and uncertainty
A capped pool means you should treat the award amount as “expected, not guaranteed,” until allocation is known.
5) When it’s usually not worth it
The common “no” cases are predictable:
If your Iowa headcount is small, your benefit may be too small relative to the annual compliance lift.
If your business doesn’t fit the targeted sectors cleanly, you can spend time preparing and still get rejected.
If your documentation is thin, you’re building the claim backwards—and this program is designed to punish that.
6) What to do in 2025 if Iowa matters to you
If Iowa is strategically important, 2025 is the year to get organized.
RSM notes that companies should consider taking full advantage of the existing credit while it’s still available for 2024 and 2025, while also building better systems to track Iowa QREs to meet the new CPA-verification expectations and planning around the new application timeline.
They also note an initial deadline of January 31, 2027 for 2026 claims—meaning timing and extensions may become part of the playbook.
The Takeaway
Iowa didn’t “kill” R&D credits. It narrowed them and put them behind a gate.
Starting in 2026, Iowa’s R&D credit is best viewed as a targeted incentive with a capped budget and an application process—not a routine, automatic tax credit.
If you’re a tech company with real Iowa engineering activity, strong documentation, and enough spend to justify the compliance lift, the credit can still be worth pursuing.
If not, the rational move is to treat Iowa as a state where R&D credit ROI is no longer assumed—you run the numbers, weigh the admin cost, and decide like an operator.
