Can Companies Claim
R&D Tax Credits in Illinois?
Yes. Illinois offers an R&D Tax Credit similar to the federal version, including the definition of qualifying research, with a few state-specific differences.
Key Features of the Illinois R&D Credit
Qualified research includes in-house research expenses, contract research expenses, and basic research payments.
Credit equals 6.5% of qualifying research expenses in Illinois that exceed a base amount.
Base amount is the average qualifying expenses from the three prior taxable years.
The credit is nonrefundable, but unused credits can be carried forward for up to 5 years.
Partnerships, S corporations, or LLCs must distribute credits to partners, shareholders, or members according to their distributive share or a written agreement starting in 2023.
The Illinois R&D Tax Credit is set to expire on December 31, 2031.
Illinois Tax Credit Case Study
A Chicago company manufacturing farming equipment components claimed research credits for multi-year engineering design and development projects, including prototype supplies.
The company qualified for $582,563 in federal R&D credits and $165,577 in Illinois state credits.
FEDERAL | ILLINOIS | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $2,050,000 | $200,083 | $2,050,000 | $52,542 |
2023 | $1,585,000 | $160,510 | $1,585,000 | $46,020 |
2022 | $1,305,000 | $140,070 | $1,305,000 | $45,240 |
2021 | $835,000 | $81,900 | $835,000 | $21,775 |
Total | $5,775,000 | $582,563 | $5,775,000 | $165,577 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $2,050,000 | $200,083 |
| 2023 | $1,585,000 | $160,510 |
| 2022 | $1,305,000 | $140,070 |
| 2021 | $835,000 | $81,900 |
| Total | $5,775,000 | $582,563 |
Illinois R&D Tax Credit Summary
| Year | Illinois Credit |
|---|---|
| 2024 | $52,542 |
| 2023 | $46,020 |
| 2022 | $45,240 |
| 2021 | $21,775 |
| Total | $165,557 |
Criteria for Qualifying Research Activities
The four-part test below defines what counts as qualified research activities
Purpose of the Research
The activity should develop or improve a business component, such as a product, process, software, formula, technique, or invention, by enhancing functionality, performance, reliability, or quality.
Resolving Uncertainty
The work must address technical uncertainties, such as determining the optimal design, method, or approach to achieve the desired outcome. The results should not be known in advance.
Systematic Experimentation
Eligible research must follow a structured experimentation process, including trial and error, modeling, simulation, or testing alternatives to reach the intended improvement.
Technological Basis
The activity must rely on hard sciences such as engineering, physical or biological sciences, or computer science. Artistic, social science, or routine data collection work does not qualify.
Why the R&D Tax Credit Matters ?
Since 1981, the R&D Tax Credit has helped businesses save billions in federal and state taxes. The credit enables companies to hire more staff, expand R&D, invest in facilities, and drive innovation. Thousands of businesses across multiple industries take advantage of this benefit each year.