Illinois R&D Tax Credit Summary

 

On July 6, 2017 the State of Illinois passed Public Act 100-0022, reinstating the Research and Development Tax Credit (“R&D Credit”) for tax years ending after December 31, 2015 through tax years ending before January 1, 2022. Similar to prior tax years, the credit is equal to 6.5 % of the difference between the current credit year qualifying Illinois expenditures and the average of the prior three year state qualifying research expenditures. The Illinois research credit is very similar to the federal research tax credit (pursuant to IRC 41), including the definition of qualifying research.
 
Qualifying expenditures include wage, contractor, and supply expenses related to a business’ attempts to develop or improve the functionality or performance of its products, manufacturing processes, software, or other components.

Credit Calculation:

A credit is allowed against the regular income tax for increasing research activities in Illinois in an amount equal to 6.5% of qualifying expenditures over the average amount of QREs for the three preceding taxable years

  • “Qualifying expenditures” means qualifying expenditures as defined for the federal credit for increasing research activities that would be allowed under IRC § 41 and that are conducted in Illinois.

    • Qualified research is defined in IRC § 41(d). IRC § 41(b) as the sum of in-house research expenses and contract research expenses paid or incurred by the taxpayer during the taxable year in carrying on any trade or business of the taxpayer.

    • Qualifying expenditures also include basic research payments, as that term is defined in IRC § 41(e)

  • “Qualifying expenditures for the base period” means the average of the qualifying expenditures for each year in the base period.

    • The base period is the three years immediately preceding the tax year for which the credit is calculated.

Eligible Entities: C-Corporations, S-Corporations, LLCs, Partnerships

Deadline for Tax Filing: Due with Illinois Tax Return. 

Data Required to Compute Credit

  • Claim Period Qualified R&D Expenses (QREs)

  • QREs for Prior 3 Years

Credit Carryforward: 5 Years

  • Any credit in excess of tax liability for the tax year can be carried forward for five years or until it is fully used, whichever occurs first. No credit earned in a tax year ending prior to December 31, 2003 may be carried forward to any year ending on or after December 31, 2003.

  • For carryover purposes, taxpayers may only use credit that was earned for tax years ending on or after December 31, 2004 and ending before January 1, 2016. Any credit or credit carry-forward that was earned prior to December 31, 2003 may not be used.

Refundable/Transferable Tax Credit: No


Flow Through Entity

  • “For tax years beginning on and after January 1, 1999, partners and shareholders of Subchapter S corporations shall be allowed a credit under this subsection (h) to be determined in accordance with the determination of income and distributive share of income under Sections 702 and 704 and Subchapter S of the Internal Revenue Code (IITA Section 201(k)).

  • No inference shall be drawn from the enactment of PA 91-644, which expressly allows this pass-through of credits, in construing IITA Section 201(k) for tax years beginning prior to January 1, 1999.”

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