active State Tax Credit

Minnesota Research Credit

Minnesota Department of Revenue

10% first $2M + 4% above

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The short version

Tiered MN R&D credit, refundable from 2025

Minnesota's research credit offers 10% on the first $2 million of incremental qualified research expenses above the historical base, plus 4% on any incremental QRE above $2 million. Calculated using Minnesota-adjusted gross receipts for the base period. Available to corporations, S-corporations, and partnerships. Starting in 2025, the credit becomes partially refundable — 19.2% of unused credit is refundable for tax years beginning after December 31, 2024, rising to 25% for 2026–2027.

Funding type: Tax Credit
Level: State
Amount: 10% of incremental Minnesota QRE up to $2,000,000 above the base amount, plus 4% on incremental QRE exceeding $2,000,000. Base amount calculated using Minnesota sales/receipts (not federal gross receipts). Non-refundable for years prior to 2025; partially refundable starting 2025 (19.2% refundable in 2025; 25% in 2026–2027; commissioner-adjusted capped at 25% from 2028+). Carryforward: 15 tax years.
Realistic amount: A Minnesota medical device company with $1.2M in annual incremental Minnesota QRE generates a $120,000 credit (10% × $1.…
Deadline: Rolling — claimed annually on Minnesota income tax return (Form M4 for C-corps, Form M8 for S-corps, Form M3 for partnerships)
Status: active
States: MN
Payment model: tax offset

Who qualifies

Corporations, partnerships, S-corporations, and their shareholders/partners subject to Minnesota income tax
Conducted qualified research activities within Minnesota during the tax year
QRE must satisfy the federal IRC §41 four-part test (technological in nature, discover information, process of experimentation, qualified purpose)
Minnesota-specific base amount calculation uses Minnesota sales or receipts (not federal gross receipts) — requires separate Minnesota base period computation
For pass-through entities, the credit is allocated per IRC §41(f)(2) for partnerships and §1366(a) for S-corp shareholders, then claimed on the owner's Minnesota return
Partially refundable starting for tax years beginning after December 31, 2024 — taxpayers must have insufficient Minnesota tax liability to use the full credit to access the refundable portion

What it covers

Eligible expenses

Wages paid to Minnesota employees directly performing qualified research activities
65% of amounts paid to Minnesota-based contractors for qualified research
Supplies consumed in the conduct of qualified research in Minnesota
Computer lease costs attributable to qualifying Minnesota research activities

Ineligible expenses

Research funded by government grants or contracts
Research performed outside Minnesota (apportion carefully for multi-state companies)
Social science, arts, humanities, or management research
Routine adaptation of existing products without technological uncertainty
Customer-funded research where the customer owns the results

How to apply

1

Compute Minnesota-specific QRE

Identify qualified research expenses for Minnesota-sited activities. Minnesota follows the federal §41 QRE definition but requires a Minnesota-specific geographic allocation. Document wages, supply costs, and 65% of contract research for Minnesota-located work.

~4 hrs
2

Calculate Minnesota base amount

Compute the historical base using Minnesota sales/receipts (not federal gross receipts) per the §290.068 formula. This requires a separate Minnesota base period calculation even if you already computed the federal base on Form 6765. For new businesses, special rules apply for short base periods.

~4 hrs
3

Apply tiered rate to incremental QRE

Apply 10% to the first $2,000,000 of Minnesota QRE exceeding the base amount. Apply 4% to any incremental Minnesota QRE above $2,000,000. Sum the two tiers for the total current-year credit. Record on the applicable Minnesota credit schedule.

~4 hrs
4

Claim on Minnesota income tax return and elect refund if applicable

Attach the credit schedule to Form M4 (C-corp), M8 (S-corp), or M3 (partnership). Apply against Minnesota income tax liability. If unused credit remains after the tax liability cap, either carry forward up to 15 years or — for tax years beginning after December 31, 2024 — elect the partial refund (19.2% in 2025, 25% in 2026–2027) per Revenue instructions.

~4 hrs

Industry & certifications

NAICS codes: 541511, 541512, 541714, 541715, 325412, 334510, 336, 311

Insider tip

Minnesota's credit became partially refundable in 2025 — 19.2% of unused credit converts to cash. Loss-year companies and pre-revenue R&D-heavy firms should model this carefully, as the cash refund makes MN notably more valuable than most non-refundable state credits.

Deadline & timing

No competitive application or pre-certification required. Self-computed using Schedule M1CR (for individuals) or the applicable corporate credit schedule. Minnesota corporate income tax returns are due by the 15th day of the 3rd month following year-end (March 15 for calendar-year C-corps). For pass-throughs, credit passes through to owners on Schedule KPI/KS/KF and is claimed on their individual returns. Starting 2025, taxpayers with unused credit may elect the partial refund — contact MN Revenue for refund election procedures.

Programs that stack well

Research & Development Tax Credit (Section 41)

Related programs

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.