Are R&D Tax Credits
Available in Indiana?
Yes. The state of Indiana allows taxpayers who incur Indiana-qualified research expenses (QREs) to claim a Research and Development (R&D) Tax Credit. Indiana generally follows the federal Section 41 rules for qualifying research activities, with some state-specific modifications.
Applicable Indiana Code
Ind. Code Sec. 6-3.1-4-1
Qualified Research Expenses
QREs must be expenses related to research conducted in Indiana.
Credit Calculation
(for expenses incurred on or after January 1, 2008):
Step 1: Subtract the base amount from the Indiana QREs.
Step 2: Multiply the lesser of $1 million or the result of Step 1 by 15%.
Step 3: If the remainder of Step 1 exceeds $1 million, multiply the excess by 10%.
Step 4: The credit is the sum of Step 2 and Step 3.
Alternative Credit Calculation:
Certain taxpayers may use an alternative method:
- Taxpayers engaged in civil and military jet propulsion production
- Taxpayers certified by the Indiana Economic Development Corporation (IEDC) as aerospace advanced manufacturers
- U.S. Department of Defense contractors
- Taxpayers maintaining manufacturing facilities in Indiana with at least 3,000 full-time employees earning over 400% of the hourly minimum wage
Under this method
- The credit is a percentage (up to 10%) of Indiana QREs minus 50% of the average QREs for the prior three years.
- If a taxpayer had no QREs in all three prior years, the credit is 5% of the current year’s QREs
- For taxpayers involved in jet propulsion production (tax years starting 2006), the credit percentage is determined by the IEDC, not exceeding 10%.
Additional Notes
The Indiana R&D credit is non-refundable.
Unused credits may be carried forward for 10 years.
Indiana R&D Tax Credit Case Study
An Indiana life sciences company with fewer than 100 employees had never claimed the R&D Tax Credit before. The company conducted a multi-year research project.
The Company qualified for the federal R&D Tax Credit of $376,925 and an additional $282,694 in Indiana state R&D Tax Credit.
FEDERAL | INDIANA | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $1,012,550 | $101,255 | $1,012,550 | $75,941 |
2023 | $955,200 | $95,520 | $955,200 | $71,640 |
2022 | $905,800 | $90,580 | $905,800 | $67,935 |
2021 | $895,700 | $89,570 | $895,700 | $67,178 |
Total | $3,769,250 | $376,925 | $3,769,250 | $282,694 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $1,012,550 | $101,255 |
| 2023 | $955,200 | $95,520 |
| 2022 | $905,800 | $90,580 |
| 2021 | $895,700 | $89,570 |
| Total | $3,769,250 | $376,925 |
Indiana R&D Tax Credit Summary
| Year | Indiana Credit |
|---|---|
| 2024 | $75,941 |
| 2023 | $71,640 |
| 2022 | $67,935 |
| 2021 | $67,178 |
| Total | $282,694 |
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.