The Question

“Michigan brought back its R&D credit — but is this something we should be paying attention to?”

Yes.
Michigan’s new R&D credit, effective for tax years beginning on or after January 1, 2025, is one of the most meaningful state-level incentives added in years. It’s refundable, it rewards collaboration with Michigan research universities, and it supports both corporations and certain flow-through entities — something most states don’t do.

But it also comes with strict deadlines, a required “tentative claim” filing, and annual caps that can reduce credit amounts if demand exceeds the statewide limit.

This is not a simple plug-and-play program.
But for the right company, the benefit can be substantial.

The Short Answer

Michigan’s 2025 R&D credit is worth understanding because:

• it is refundable, which immediately makes it valuable for early-stage or unprofitable tech companies,

• it uses a calculation that can generate meaningful benefits for companies increasing their R&D spending,

• it adds a bonus credit for university collaboration,

• it applies to both C-corporations and flow-through entities,

• and it requires a time-sensitive “tentative claim” filing (April 1, 2026 for the first year).

The catch:
Michigan expects companies to document their R&D carefully, calculate their credit precisely, and file on time — or they simply do not qualify.

The Deep Dive

1. Who Can Claim the New Michigan Credit?

Michigan made its 2025 credit accessible to two broad categories of taxpayers:

1. CIT taxpayers (C-corporations and unitary business groups filing under Michigan’s Corporate Income Tax), and

2. Flow-through entities (S-corps, partnerships, LLCs taxed as partnerships) that have Michigan withholding obligations.

In both cases, the company must have increased its R&D spending over a defined base amount — calculated as the average Michigan R&D expenses for the prior three calendar years.

This is important:
Michigan only looks at in-state R&D. Multi-state companies cannot include out-of-state development work.

The definition of qualifying research expenses follows IRC §41(b) — wages, contractor costs (performed in Michigan), and supplies used for R&D — but Michigan does not import all federal rules. It simply borrows the definition of “qualified research expenses,” not the entire federal regulatory structure.

2. How the Credit Amount Is Calculated

Michigan’s formula rewards both stability and growth in R&D spending.
The credit has two components:

First, a base credit:

• 3% of R&D expenses up to the base amount, and

• a higher percentage (10% or 15%, depending on employee count) for expenses above that base.

Companies with fewer than 250 employees receive the more generous rate (15% above the base). Larger organizations receive 10%.

The annual caps matter:

• Up to $250,000 for smaller companies

• Up to $2,000,000 for larger ones

Unlike many state credits, Michigan’s is refundable, which dramatically increases its usefulness for early-stage companies.

Second, a bonus credit:
If the company collaborates with a Michigan research university under a written agreement, it may receive an additional 5% credit on those expenses — up to $200,000 annually.

This is one of the few state programs in the country that actively rewards academic collaboration.

3. The Tentative Claim Requirement — The Part Everyone Misses

To qualify for the credit, companies must submit a tentative claim by a strict deadline:

• For 2025 R&D expenses → April 1, 2026

• For later years → March 15 of the following year

This filing is not optional.
If you miss it, the credit is gone for that year — no exceptions.

Michigan expects the tentative claim to include actual R&D expenses, not estimates. These figures affect statewide proration, so precision matters.

This single rule shifts Michigan from a “claim on your tax return” state to a “pre-apply or be disqualified” state.

4. The Statewide $100 Million Cap (And How Proration Works)

Michigan limits the total amount of credits awarded each year to $100 million statewide.
If the sum of all tentative claims exceeds that limit, the state will prorate everyone’s credit.

This introduces uncertainty — especially in the first couple of years when demand is likely to be high.

Michigan will publish the proration results each year before taxpayers file their returns.
Companies need to plan around the possibility that they may not receive their full calculated credit.

This is similar to competitive or capped programs in other states, but with more transparency.

5. How Companies Actually Claim the Credit

Once the tentative claim is submitted and the state has issued its proration notice:

• CIT taxpayers claim the credit on their annual return for the year the R&D occurred.

• Flow-through entities claim the credit on their annual withholding tax return for the year the tentative claim was filed.

Flow-through entities may reduce their ongoing withholding payments once the state releases the proration notice, but they must be careful: underpaying withholding before that notice comes out can lead to penalties.

This structure gives flow-through businesses access to a refundable credit, something most states limit to corporations.

6. Documentation Expectations (Michigan Is Quietly Strict)

Michigan’s R&D credit uses the federal definition of qualified research expenses — but that does not mean Michigan will accept light or reconstructed documentation.

Because the program includes:

• refundability,

• a multi-year base-period calculation,

• and collaboration bonuses,

the state will expect companies to maintain solid evidence of:

• which Michigan-based activities qualify,

• how time and expenses were allocated,

• which contractors performed eligible work in-state,

• how the base amount was calculated accurately,

• and how university collaboration was documented.

Companies with weak documentation will struggle — and because the credit is refundable, scrutiny is likely to increase over time.

7. Who Should Prioritize the Michigan Credit?

This credit is especially valuable for:

• early-stage companies with substantial Michigan engineering headcount

• venture-backed startups looking to extend runway

• companies collaborating with Michigan research universities

• growth-stage tech companies expecting to scale R&D

• multi-state companies with significant in-state R&D that previously saw little value in Michigan

Companies with minimal Michigan payroll, or those without the documentation discipline to support the claim, may find the effort outweighs the benefit — particularly with the tentative claim requirement and statewide cap.

The Takeaway

Michigan’s new R&D credit is one of the most founder-friendly incentives introduced in recent years — refundable, collaboration-friendly, and accessible to both corporations and flow-through entities.

But it’s also a program that rewards preparedness and documentation:

• The tentative claim deadline is strict.

• The program has a statewide cap that can reduce credit amounts.

• Companies must use actual expenses when filing.

• Documentation must support both the base calculation and the current-year claim.

• Out-of-state work is irrelevant — only Michigan R&D counts.

For Michigan-based tech companies — or multi-state companies with real engineering presence in the state — this credit can be a meaningful driver of value.

But it’s only valuable for the companies ready to approach it with clarity, discipline, and an understanding of how the program actually works.