Are R&D Tax Credits
Available in Iowa?
Yes. Iowa provides a Research and Development (R&D) Tax Credit similar to the federal version, allowing companies to calculate the credit using either the Regular or Alternative Simplified Credit (ASC) method. The definition of qualifying research aligns with IRC Sec. 41, but only expenses incurred in Iowa are eligible.
Eligibility
Taxpayers in the following industries can claim the Iowa research credit:
Manufacturing
Life Sciences
Agrisciences
Software Engineering
Aviation and Aerospace
Credit Calculation
Regular Method:
6.5% of Iowa QREs exceeding the base amount + 6.5% of basic research payments.
Base Amount:
Calculated by multiplying a fixed-base percentage by the taxpayer’s average annual gross receipts for the prior four years (cannot be less than 50% of QREs).
Alternative Simplified Credit (ASC):
4.55% of QREs for the past three years; for tax years beginning in 2023, taxpayers using ASC for federal purposes must use ASC for Iowa.
Supplemental Research Activities Credit
Companies receiving awards under the Iowa Economic Development Authority’s Enterprise Zone Program or High-Quality Jobs Program can calculate an additional credit:
10% of qualifying incremental research expense for companies with gross revenues under $20 million
3% for companies with gross revenues over $20 million
Usage:
Excess credit may be refunded or carried forward to the following tax year.
Claiming the Credit:
Companies must submit the applicable forms with their Iowa tax return for the year in which QREs were incurred.
Iowa R&D Tax Credit Case Study
An automotive company with its own development and design facility in Iowa claimed the R&D tax credit for a three-year project.
Federal R&D Tax Credit: $305,063
Iowa State R&D Tax Credit (refundable): $99,145
FEDERAL | IOWA | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $2,387,778 | $95,853 | $2,387,778 | $30,827 |
2023 | $2,258,977 | $75,843 | $2,258,977 | $24,646 |
2022 | $2,598,748 | $87,338 | $2,598,748 | $43,669 |
Total | $7,245,503 | $305,063 | $7,245,503 | $99,145 |
Federal R&D Tax Credit Summary
Year | Total QREs | Credit |
2024 | $2,387,778 | $95,853 |
2023 | $2,258,977 | $75,843 |
2022 | $2,598,748 | $87,338 |
Total | $7,245,503 | $305,063 |
Lowa R&D Tax Credit Summary
Year | Lowa Credit |
2024 | $30,827 |
2023 | $24,646 |
2022 | $43,669 |
Total | $99,145 |
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.