Key Takeaways
- Minnesota’s R&D credit is now partially refundable, creating a new cash-flow opportunity for eligible taxpayers.
- The refundable amount starts at 19.2% for 2025 and increases to 25% for 2026 and 2027.
- Taxpayers must elect the refund option on a timely filed Minnesota return to access the benefit.
Minnesota's Research and Development (R&D) tax credit is now partially refundable for the first time. Prior to the 2025 law change, the credit was strictly nonrefundable and could only offset Minnesota income/franchise tax liability, with unused credits carried forward for up to 15 years. This change effectively converts a portion of the Minnesota R&D credit from a future tax benefit into an immediate cash-flow benefit.
Taxpayers may now elect to receive a cash refund of a portion of unused current-year R&D credits. The refundable amount applies only after the credit has reduced Minnesota tax liability to zero.
Rates for New Minnesota R&D Credit
For tax year 2025 (tax years beginning after December 31, 2024, and before January 1, 2026), the refundability rate is 19.2%. In other words, taxpayers may receive a refund equal to 19.2% of the excess R&D credit remaining after offsetting tax liability.
The refundability percentage increases to 25% for tax years beginning after December 31, 2025, and before January 1, 2028.
Beginning in 2028, the refundable percentage may vary annually. The rate will be the lesser of 25% or a percentage established to target approximately $25 million of statewide R&D credit refunds annually.
A taxpayer election is required. The refund option must be elected on a timely filed Minnesota return (including extensions).
The underlying Minnesota credit calculation did not change. The credit continues to equal 10% of qualifying Minnesota research expenses up to the first $2 million over the base amount, and 4% above that threshold.
Unused credits that are not refunded continue to carry forward for up to 15 years. The change is especially valuable for startups, early-stage companies, and loss-generating businesses that historically generated Minnesota R&D credits but had insufficient Minnesota tax liability to utilize them.
Next Steps for Minnesota’s New R&D Credit
Minnesota’s new refundable R&D tax credit rules provide businesses with a valuable opportunity to convert a portion of unused credits into immediate cash while preserving the ability to carry forward the remaining balance. Companies generating Minnesota R&D credits should evaluate the impact of these changes and consider the refund election to maximize the value of their R&D investments. Eide Bailly can help.
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