Are R&D Tax Credits
Available in Wisconsin?
Yes. Wisconsin provides a Research and Development (R&D) Tax Credit that leverages Federal Section 41 rules for qualifying research activities, with some state-specific modifications.
Key Highlights
Research Credit for Increasing Research:
5.75% of the amount by which Wisconsin qualified research expenses (QREs) for the taxable year exceed 50% of the average QREs for the three prior taxable years.
If there were no QREs in any of the three prior years, the credit is 2.875% of QREs for the taxable year.
Research Credit for Internal Combustion Engines:
11.5% of QREs exceeded 50% of the average QREs for the prior three years.
If no QREs in any prior year, 5.75% of QREs is allowed.
Research Credit for Certain Energy-Efficient Products:
Follows the same calculation rules as for internal combustion engines.
Other Key Points:
QREs must be incurred in Wisconsin.
Compensation used in computing development zone credits is excluded.
Credits may be claimed by corporations, individuals, partners, shareholders, or LLC members.
Credits must be claimed within four years of the unextended tax return due date.
Refundable credit percentages: 10% (2018+), 15% (2021+), 25% (2024+).
Unused non-refundable credits can be carried forward for up to 15 years.
Wisconsin Tax Credit Case Study
A Wisconsin software development company claimed R&D credits for a multi-year project. The company qualified for:
Federal R&D Tax Credit: $361,666
Wisconsin State R&D Tax Credit: $104,858
FEDERAL | WISCONSIN | |||
Year | Total QREs | Credit | Total QREs | Credit |
2024 | $1,400,000 | $141,166 | $1,400,000 | $51,585 |
2023 | $1,000,000 | $98,000 | $1,000,000 | $29,723 |
2022 | $750,000 | $73,500 | $750,000 | $23,550 |
2021 | $500,000 | $49,000 | NA | NA |
Total | $3,650,000 | $361,666 | $3,150,000 | $104,858 |
Federal R&D Tax Credit Summary
| Year | Total QREs | Federal Credit |
|---|---|---|
| 2024 | $1,400,000 | $141,166 |
| 2023 | $1,000,000 | $98,000 |
| 2022 | $750,000 | $73,500 |
| 2021 | $500,000 | $49,000 |
| Total | $3,650,000 | $361,666 |
Wisconsin R&D Tax Credit Summary
| Year | Wisconsin Credit |
|---|---|
| 2024 | $51,585 |
| 2023 | $29,723 |
| 2022 | $23,550 |
| 2021 | NA |
| Total | $104,858 |
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.