Research and Development Credit Proration Notice for Credits Based on 2025 Expenses

Public Acts 186 and 187 of 2024 added Section 677 (MCL 206.677) and Section 717 (MCL 206.717) to the Income Tax Act, establishing a refundable corporate income tax (CIT) and withholding tax credit for Michigan qualifying research and development expenses (MQREs). The statute provides an annual cap of $100 million across all CIT and withholding tax filers. Based on the tentative claims submitted, the statute may require tentative claims to be prorated, including separate proration calculations for employers with less than 250 employees (small employers) and those with 250 employees or more (large employers). Proration is determined as follows:

Treasury is required to review all tentative claims and publish a notice notifying taxpayers of the proration adjustment, if any, that may be required to claim the credit.

Proration percentages to be applied to tentative claims for 2025 MQREs

Tentative claims were required to be submitted on or before April 1, 2026, based on 2025 MQREs. Based on total tentative claims submitted, Treasury has determined that total tentative claims exceeded $100 million, with small-employer claims exceeding $25 million but not exceeding 25% of total claims (condition (3) above). Consequently, in determining its allowed credit for 2025 expenses, a claimant must multiply its tentative claim by the applicable percentage below, except as otherwise noted:

For large-employer claims: 50.96%

For small-employer claims:59.88%

NOTE: The proration percentage must be applied to the tentative claim even if a claimant later determines its tentative claim was too low; however, if a claimant determines its tentative claim was too high, the claimant must apply the proration percentage to the corrected (lower) amount.

The credit is claimed on the CIT annual return (Form 4891, 4905, or 4908) or the withholding tax annual return (Form 5081), whichever is applicable. Claimants should follow the instructions with each respective form to ensure the appropriate amount is reported. Withholding claimants may use the credit to offset interim periodic withholding tax payments. Additional information about offsetting periodic withholding tax payments is available at: www.michigan.gov/taxes/business-taxes/rdcredit/eligible/withholding/offset.

For additional information about the research and development credit, please see RAB 2026-4 and https://www.michigan.gov/taxes/business-taxes/rdcredit.