Minnesota R&D Tax Credit
Funds Minnesota companies through innovation tax credits that reward innovation investment and talent expansion.
Eligibility · United States · US-MN
The Minnesota Credit for Increasing Research Activities is a state income and franchise tax credit administered by the Minnesota Department of Revenue under Minn. Stat. §290.068. The credit is calculated at 10% of qualified research expenses (QREs) up to a base amount of $2 million, and 4% on QREs exceeding that $2 million threshold. Minnesota's base amount uses a ratio of state gross receipts to total gross receipts applied to historical federal QREs — a methodology revised after May 30, 2017 to use Minnesota-specific sales/gross receipts rather than the pre-2017 federal base. Qualified activities must meet the federal IRC §41 four-part test, and only QREs incurred in Minnesota are eligible.
A significant legislative reform effective for tax year 2025 introduced a refundable election: for TY2025, 19.2% of the credit is refundable; this rises to 25% for TY2026 and TY2027, with the 25% cap maintained thereafter. The refundable election is made on a timely-filed return and is available to C-corporations, estates, individuals, and trusts. For S-corporations and partnerships, the election is made at the partner or shareholder level. The nonrefundable remainder carries forward for up to 15 years. The credit is claimed on Schedule RD attached to Form M4 (corporation franchise) or Form M1 (individual), with no pre-approval or application to the Department of Revenue required. Award values range from a few thousand dollars for small Minnesota R&D operations to $3 million or more for larger companies with significant incremental QRE activity.
The program is sector-agnostic, supporting for-profit companies and eligible research organizations across industries including medical devices, pharmaceuticals, advanced manufacturing, software, and agriculture-related technology — all prominent segments of Minnesota's economy. The introduction of the partial refundability mechanism starting in 2025 substantially improves the credit's utility for growth-stage companies and pre-profit biotechnology firms operating in Minnesota, converting what had previously been a deferred tax attribute into a current-year partial cash benefit. Companies new to the credit should model both the regular and simplified alternative credit computation methods to identify which yields a higher annual benefit.
Minnesota income tax credit for qualifying in-state research expenses, calculated at 10% up to a $2 million base and 4% above, with up to 25% of the credit refundable beginning in tax year 2025.
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