active State Tax Credit

Illinois Research & Development Tax Credit

Illinois Department of Revenue

6.5% of incremental QRE

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The short version

Incremental R&D credit for all IL entity types

Illinois offers a 6.5% tax credit on the incremental increase in qualified research expenses over the prior 3-year average base, calculated on Illinois-located research activities. Available to corporations, S-corporations, partnerships, and individuals — one of the more inclusive state R&D credits. Non-refundable, with a 5-year carryforward, and it stacks directly with the federal §41 credit on the same Illinois research spend.

Funding type: Tax Credit
Level: State
Amount: 6.5% of the excess of Illinois-located qualified research expenses over 50% of the average Illinois QRE for the preceding 3 tax years. No annual statewide cap. Non-refundable; unused credits carry forward 5 tax years.
Realistic amount: An Illinois software company spending $800K/yr on qualifying research wages with a $500K 3-year average base generates $…
Deadline: Rolling — claimed annually on Illinois income tax return (IL-1120 for C-corps, IL-1040 Schedule ICR for individuals, IL-1065 for partnerships, IL-1120-ST for S-corps)
Status: active
States: IL
Payment model: tax offset

Who qualifies

Any taxpayer subject to Illinois income tax — corporations, S-corporations, partnerships, LLCs, and individuals (sole proprietors)
Conducted qualified research activities within Illinois during the tax year
Qualified research expenses must meet the federal IRC §41 definition (experimental in nature, discover technological information, substantially all activities constitute a process of experimentation)
Incremental credit requires at least 3 prior tax years of Illinois research history to establish the base; new businesses may use a short-period base in early years
Illinois QRE must be segregated from out-of-state research spend — only Illinois-located activities count

What it covers

Eligible expenses

Wages paid to Illinois employees directly engaged in qualified research activities
65% of contract research expenses paid to third parties for Illinois-located qualified research
Supplies consumed in the conduct of qualified research in Illinois
Rental or lease costs for equipment used exclusively in Illinois qualified research

Ineligible expenses

Research funded by federal, state, or local government grants or contracts
Research conducted outside Illinois (must apportion carefully for multi-state R&D)
Adaptation of existing business components — must be technological uncertainty and experimentation
Social sciences, arts, humanities, or management research
Research after commercial production of a substantially identical product has begun

How to apply

1

Document Illinois-located QRE

Identify and document qualified research expenses attributable to activities conducted in Illinois: employee wages, contractor costs (65%), and supply costs for Illinois-sited research. Separate Illinois QRE from federal QRE claimed on Form 6765 — some expenses differ.

~3 hrs
2

Compute the 3-year base and incremental amount

Average your Illinois QRE for the 3 prior tax years, then multiply by 50% to get the Illinois base amount. The credit applies to current-year Illinois QRE exceeding that base. If fewer than 3 prior years exist, use available history.

~3 hrs
3

Calculate credit on Schedule 1299-D

Multiply the incremental Illinois QRE (current year minus base) by 6.5% to arrive at the current-year credit. Record on Illinois Schedule 1299-D, Part III (Research and Development Credit). Apply credit against current-year Illinois income tax liability.

~3 hrs
4

File with Illinois income tax return

Attach Schedule 1299-D to your Illinois income/franchise tax return (IL-1120, IL-1040, IL-1120-ST, or IL-1065 as applicable). No pre-certification or external application required. Track any unused credit for carryforward on subsequent Schedule 1299-D filings.

~3 hrs

Industry & certifications

NAICS codes: 541511, 541512, 541714, 541715, 325412, 336411, 311

Insider tip

Illinois accepts all entity types — sole props and partnerships often miss this. If you're an S-corp, the credit flows to shareholders on their K-1 and reduces personal IL income tax.

Deadline & timing

File Illinois Schedule 1299-D (Credits for Qualifying Businesses) with your Illinois income tax return. Illinois corporate returns are due the 15th day of the month following the federal due date. No separate application or certification is needed — the credit is self-computed on Schedule 1299-D. Carryforward credits are tracked on the same schedule in subsequent years.

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Last reviewed 2026. GrantCompass is an independent funding-discovery tool and is not affiliated with any government agency. Always confirm details on the official program page.