Illinois Research Tax Credit

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The Illinois research and development (R&D) income tax credit is intended to reward taxpayers who increase spending for R&D activities in Illinois.

Amount of the Illinois Research Tax Credit

The Illinois R&D income tax credit is equal to 6.5 percent of the difference between the taxpayer’s qualified expenses for activities in Illinois in the current year and the average of the taxpayer’s qualified expenses for activities in Illinois in the prior three tax years. The three tax years immediately prior to the year in which the credit is claimed is referred to collectively as the “base period.”

Research Tax Credit Base Period

The base period is used to determine whether taxpayers have increased their R&D spending in the current year. Taxpayers do not have to include any expenses in determining their qualified expenses in the base period if the taxpayer did not have any qualified expenses for activities in Illinois during any one or more of the base period years. This may be the case where the taxpayer was not in business, was not operating in Illinois, or was not performing R&D activities in one or more of the base period years.

Limitations on the Amount Claimed

The Illinois R&D income tax credit is only available for tax years ending after July 1, 1990, and prior to December 31, 2003, and beginning again for tax years ending on or after December 31, 2004. The Illinois R&D income tax credit in excess of the taxpayer’s current year tax liability can be carried forward for up to five tax years. Taxpayers that fail to include R&D income tax claims on originally filed Illinois income tax returns are generally able to file amended Illinois tax returns to claim R&D income tax credits for the prior four years.

Qualifying Research Expenditures

Qualified expenses include those for research activities carried out in Illinois that would be allowable as qualified expenditures pursuant to Internal Revenue Code (Code) § 41 research and experimental (R&E) income tax credit so long as they are incurred for activities in carrying on any trade or business in Illinois. In-house research and contract research expenses can qualify as research expenses pursuant to Code § 41.