The 13% QIS Advantage: Navigating the Illinois Quantum Information Science Research and Development Tax Credit

The Quantum Information Science (QIS) Research and Development Tax Credit is Illinois’ aggressive new incentive offering a 13% income tax credit for qualifying expenditures made directly in quantum research. This targeted credit strategically deviates from the standard 6.5% incremental Illinois R&D credit by generally applying the benefit to a company’s total annual qualifying expenses, thus maximizing financial relief for high-growth and established quantum technology firms alike.1

I. The Strategic Mandate: Positioning Illinois as the Quantum Capital

The introduction of the Quantum Information Science Research and Development Tax Credit Program represents a strategic legislative initiative by Illinois to solidify and expand its existing dominance in the burgeoning field of quantum technology.1 This focused incentive is not merely a tax policy; it is an economic development tool designed to attract and retain cutting-edge research investment within the state.

A. Global Leadership and Ecosystem Anchors

The QIS R&D credit is strategically positioned as a legislative pillar intended to support Illinois’ established quantum ecosystem. The state currently leads the nation in total federal obligations and contract funding for quantum technology. Statistical analysis indicates that Illinois commands the number one position in the U.S. in federal contract funding, securing 27 contracts totaling $51,193,717. This robust federal commitment translates to a leading federal obligation per capita of $4.03, maintaining a significant margin over other states.4 This high level of existing public investment provides a stable foundation that the state credit seeks to leverage for private sector growth.

The quantum ecosystem is anchored by world-class infrastructure, including the Chicago Quantum Exchange (CQE), a major global consortium, and the presence of four out of the ten National Quantum Initiative Act research centers located within the state: Argonne National Laboratory, Fermi National Accelerator Laboratory (Fermilab), the University of Chicago (UChicago), and the University of Illinois Urbana-Champaign (UIUC).5 In further demonstrating infrastructural commitment, the state recently broke ground on the Illinois Quantum and Microelectronics Park (IQMP), a project valued at over $500 million, which will feature testing labs, shared cryogenic facilities, and workforce training programs. Anchor tenants such as PsiQuantum, IBM, Diraq, and DARPA signal the park’s importance as a global hub.5

The state’s concurrent legislative support for both advanced research (via the 13% QIS credit) and the necessary infrastructure (via the related Quantum Computing Campuses tax credit, Code 5480) 6 signals a comprehensive, long-term strategic commitment. This holistic approach makes the state not only a technologically capable location but also an economically compelling one for corporations considering relocation or expansion within the quantum sector.

B. Legislative Intent and Statutory Overview

The Quantum Information Science Research and Development Tax Credit Program was created specifically to promote R&D in quantum information science, quantum computing, and other applications of quantum science in technology.2 This tax credit is applied against the taxes imposed under subsections (a) and (b) of Section 201 of the Illinois Income Tax Act.2

The credit is structured to be prospective, applying only for taxable years ending on or after December 31, 2026.1 The Department of Commerce and Economic Opportunity (DCEO) is mandated to award income tax credits equal to 13% of the qualifying quantum information science expenditures incurred by the taxpayer during the taxable year.1

A critical compliance component of the QIS tax credit is the Non-Duplication Rule. Taxpayers are expressly prohibited from claiming the 13% QIS R&D credit and the existing standard Illinois R&D tax credit (the 6.5% credit) for the exact same expenditures.1 This necessitates sophisticated, auditable cost segregation strategies for companies engaged in both general R&D and quantum-specific R&D.

II. Defining the Quantum Information Science R&D Tax Credit (QQISE Credit)

The structure of the QIS credit involves specialized administrative oversight and strict statutory definitions for qualifying expenses, distinguishing it significantly from the standard state R&D incentive.

A. Statutory Framework and Administration

The administration of the QIS credit relies on a multi-departmental process. The DCEO is the awarding authority, responsible for reviewing applications and issuing the necessary tax credit certificate.3 This process is crucial because the program operates under a specific financial constraint: the total annual aggregate credit limit is capped at $25 million per calendar year.3 This cap introduces a competitive element, meaning DCEO evaluation and allocation are paramount, making the credit less of an entitlement and more of a performance-based reward subject to availability.

The legislation mandates that DCEO, in consultation with the Illinois Department of Revenue (IDOR), will develop specific rules for the implementation and administration of this program.3

B. Qualifying Expenditures: The Technical Definition of QQISE

To qualify for the 13% rate, expenditures must satisfy a two-pronged test that links quantum specialization with federal R&D standards. The legislation defines “Qualifying quantum information science expenditures” (QQISE) as expenditures specifically related to advancing quantum information science research and development in the State of Illinois that would otherwise be qualifying expenditures as defined for the federal credit for increasing research activities (IRC § 41).8

The definition’s reliance on the federal IRC § 41 requires that all claimed quantum activities meet the rigorous four-part test for qualified research:

1. Technological in Nature: Activities must rely fundamentally on principles of physical or biological science, engineering, or computer science.9
2. Permitted Purpose: Activities must seek to improve the functionality, performance, reliability, or quality of a new or existing business component.9
3. Eliminate Uncertainty: Activities must be intended to discover information that resolves technical uncertainty regarding the development or improvement of a product.9
4. Experimentation: The process must involve a systematic trial-and-error approach or modeling and simulation.9

Eligible costs for QQISE mirror the federal definition of Qualified Research Expenditures (QREs), including in-house research expenses, contract research expenses, and basic research payments.9 Specifically, these involve wages for employees performing, supervising, or supporting qualified research; the cost of supplies consumed in research; payments to third-party contractors for qualified research services; and costs associated with computer rentals or cloud services used directly in the research.10

The requirement that these expenses be “specifically related to advancing quantum information science” suggests that DCEO and IDOR will apply greater scrutiny to the technical nature of the research than under the general 6.5% credit. Taxpayers must meticulously document how their R&D, potentially involving specialized areas such as high-purity material science, sophisticated cryogenic systems, or complex quantum algorithm development, directly advances quantum capabilities, rather than constituting general technological advancement. This interpretive risk underscores the necessity of detailed documentation when applying for DCEO certification.

C. Credit Utilization and Carryforward

The QIS credit is nonrefundable; it can only offset income tax liabilities under Illinois law.10 If the amount of the credit exceeds the taxpayer’s tax liability for the year, the legislation allows the excess credit to be carried forward and applied to the tax liability of the five taxable years following the excess credit year.1 This carryforward provision ensures that large initial research investments, which may generate credits exceeding current tax liability, can still be fully utilized in the near future.

III. Calculation Methodology: The Transformative 13% Rate

The QIS credit introduces a calculation method that is highly advantageous for R&D-intensive businesses, providing a dramatic financial differentiator from the state’s existing R&D incentive structure.

A. Calculation Basis: Total Expenditures vs. Incremental Growth

The most defining feature of the 13% QIS credit is the application of the rate against the taxpayer’s total annual qualifying expenditures, effectively eliminating the base calculation found in the standard credit mechanism.

For the QIS credit, the statute specifies that the Department of Commerce and Economic Opportunity shall issue a tax credit certificate in an amount equal to 13% of the qualifying quantum information science expenditures made by the taxpayer during the taxable year.1 This calculation methodology, which grants the credit on the total current-year QQISE, is defined as a non-incremental calculation.

In contrast, the standard Illinois R&D credit (6.5%) is explicitly incremental. The standard credit is determined as 6.5% of the qualifying research expenditures (QREs) that exceed a predetermined base amount.11 This base amount is calculated as the average of the taxpayer’s QREs incurred during the three taxable years immediately preceding the current tax year.9

The non-incremental nature of the 13% QIS credit provides disproportionate strategic value, especially for established corporations or long-term research laboratories with large, stable, or recurring annual QREs. Under the incremental standard system, these companies often see limited credit benefit because their current-year expenditures rarely exceed their high historical average base by a significant margin.10 The QIS credit bypasses this structural limitation, making substantial, consistent quantum R&D programs highly profitable from a tax incentive perspective.

Table 1 summarizes the key parameters defining the QIS credit.

Table 1

IV. Statutory Comparison: The 6.5% Standard Illinois R&D Tax Credit

Understanding the standard Research and Development Tax Credit is essential for firms managing both quantum and non-quantum research portfolios, especially when calculating the opportunity cost of credit election.

A. Statutory Basis and Methodology

The general Illinois R&D credit is codified under 35 ILCS 5/201(k) and is identified by Credit Code 5340.7 This credit aligns closely with federal IRC § 41 guidelines, focusing on Illinois-sourced innovation.10 The credit has been a persistent feature of the state’s tax code, extended through tax years ending on or before December 31, 2031.7

The calculation methodology is strictly incremental, using a model akin to the federal Alternative Simplified Method (ASM).11 The credit is computed based on the excess of current-year qualifying expenditures over a base amount.12

The Base Calculation involves averaging Illinois-sourced QREs incurred during the three taxable years immediately preceding the current tax year.10 For new businesses or startups that had no qualifying Illinois expenditures in one or more of the base years, those years are counted as zero, which generally allows the company to claim the 6.5% credit on their full current-year QREs.10 The standard formula is: Credit = $6.5\% \times (\text{Current Year QREs} – \text{3-Year Average Base QREs})$.10

B. The Opportunity Cost of the Standard Credit

The existence of a non-incremental, high-rate alternative fundamentally changes the strategic decision-making process for companies engaging in quantum research.

For any R&D expenditure that meets the strict definition of QQISE, claiming the standard 6.5% credit results in a significant financial penalty. For companies with a stable, large QRE base, the incremental nature of the 6.5% calculation severely restricts the realized benefit.11 For example, a mature company might spend $1,500,000 annually on R&D but, due to a high base, may only qualify for credit on an incremental expenditure of $300,000. Applying 6.5% to this incremental amount yields a modest credit.

In contrast, the 13% QIS credit applies to the total $1,500,000, leading to a much higher absolute credit amount. This means that the only practical justification for applying the standard 6.5% incremental credit to a quantum-related expense would be if the expenditure failed to meet the specific technical definition required for QQISE, or if the annual aggregate $25 million QIS credit cap were exhausted, forcing the taxpayer to default to the general credit.

V. State Revenue Office Guidance and Compliance Procedures

Compliance for the 13% QIS credit is a structured administrative process, unique in that it requires initial certification from the economic development agency (DCEO) before the tax credit can be claimed via the revenue agency (IDOR).

A. DCEO and IDOR Roles in Implementation

The administration of the QIS credit relies on defined roles for both the state’s economic and revenue departments.

The DCEO functions as the application and allocation body. Taxpayers must apply for and receive a tax credit certificate from DCEO.3 Because the credit is capped annually at $25 million, DCEO’s role includes evaluating the applications and managing the competition for the available credit pool. DCEO is also tasked with developing the procedural rules for the program in collaboration with IDOR.3

The IDOR (Illinois Department of Revenue) is the final processing and verification body. Once the DCEO certificate is secured, the credit is claimed on the taxpayer’s annual income tax return. IDOR guidance explicitly requires that a person claiming the credit must attach a copy of the tax credit certificate issued by DCEO to their Illinois income tax return for the taxable year.6

B. IDOR Filing and Credit Codes

Income tax credits in Illinois, including those related to quantum technology, are reported centrally using Schedule 1299.7 Depending on the taxpayer entity type, this involves Schedule 1299-A (Partnerships and S Corporations), 1299-C (Individuals), or 1299-D (Corporations and Fiduciaries).7

While the 13% QIS R&D expenditure credit (effective 2026) will require a new credit code, a related incentive, the Quantum Computing Campuses Tax Credit (Credit Code 5480), has already been established by Public Act 103-0595, effective for tax years ending on or after June 26, 2024.7 This credit is distinct; it is aimed at incentivizing physical construction and expansion within designated quantum campuses, providing a 20% credit on the wages paid to construction employees.6 Like the future QIS R&D credit, the QCC credit (Code 5480) is DCEO-certified, nonrefundable, and subject to a five-year carryforward.6 The established procedure for Code 5480 serves as a template, indicating that the 13% QIS credit will similarly rely heavily on the submission of the DCEO certificate when filing Schedule 1299.7

C. Compliance Mandate: Strict Cost Segregation

The non-duplication rule, which prevents claiming both the QIS credit and the standard R&D credit for the same expense, is the most critical compliance mandate from a cost accounting standpoint.1

This requirement forces companies to adopt sophisticated accounting systems capable of allocating expenditures based on the specific technical nature of the R&D. Any expense that satisfies the high bar of QQISE should be segregated and allocated to the 13% QIS election, as this maximizes the financial return. Residual R&D expenses that qualify under the general federal IRC § 41 definition but do not meet the “specifically related to advancing quantum information science” criterion should then be allocated to the 6.5% incremental credit calculation. Failure to rigorously document this cost separation would subject the taxpayer to challenges from IDOR.

VI. Practical Application and Strategic Financial Example

The financial advantage of the 13% QIS credit is best illustrated through a comparative analysis demonstrating the effective tax rate yield relative to the standard 6.5% incremental credit.

A. Calculation Methodology Application

We model two theoretical taxpayers investing $1,500,000 in qualifying quantum research in a tax year following the credit’s effective date (2027). The only variable is their historical R&D investment, which determines their base amount for the standard credit calculation.

• Scenario 1: Quantum Startup (Low Base): This firm is new to Illinois or the field and has no qualifying QREs from the preceding three years. Its 3-year average base is $0.10
• Scenario 2: Established Research Lab (High Base): This firm has a long history of stable, high R&D spending, resulting in a 3-year average base of $1,200,000.

B. Comparative Calculation Example: Determining the Optimal Credit Election

The table below contrasts the financial outcomes under both credit systems for the identical quantum expenditure amount.

Table 2

C. Strategic Financial Implications

The comparative analysis demonstrates that the 13% QIS tax credit is strategically superior regardless of the taxpayer’s R&D expenditure history.

For the Quantum Startup (Scenario 1), which benefits maximally from the standard 6.5% credit due to its zero base, the QIS credit still yields precisely double the tax benefit ($195,000 versus $97,500). The higher statutory rate alone makes the QIS election twice as valuable for new entrants.

The benefit is even more pronounced for the Established Research Lab (Scenario 2). Due to its high historical base, the standard credit generates only $19,500. The QIS credit, however, generates the full $195,000, effectively increasing the tax benefit tenfold. This elimination of the incremental base restriction represents a powerful tool to retain large-scale, ongoing R&D operations within Illinois, preventing the diminishing returns often associated with the standard R&D incentive structure.

Therefore, for any company engaged in research that qualifies as QQISE, securing the DCEO tax credit certificate for the 13% credit becomes the central component of its tax strategy, as the financial reward dramatically outweighs the value of the incremental 6.5% credit.

VII. Conclusion: Maximizing Tax Benefits through Strategic Quantum Investment

The Illinois Quantum Information Science Research and Development Tax Credit is a landmark policy designed to aggressively capitalize on and expand the state’s technological leadership in quantum computing. By offering a high, non-incremental credit rate of 13%, Illinois has created one of the most compelling tax incentives nationally for specialized high-tech research investment.

A. Final Strategic Recommendations for Stakeholders

Companies operating in or expanding into the Illinois quantum ecosystem must adopt a strategic, multi-phase approach to maximize tax benefits:

1. Prioritize DCEO Certification and Application: The 13% QIS credit is contingent upon receiving a DCEO tax credit certificate, and the program is constrained by a $25 million annual aggregate cap. Taxpayers should treat the application process as competitive and begin preparing the necessary technical documentation well in advance of the December 31, 2026, effective date. Early engagement is essential to secure an allocation before the cap is reached.3
2. Implement Advanced Cost Segregation: Due to the strict non-duplication rule, sophisticated cost accounting practices are non-negotiable. Companies must meticulously track and separate expenditures that meet the specific definition of QQISE (eligible for the 13% credit) from those general R&D expenditures that only qualify under the federal IRC § 41 definition (eligible for the 6.5% incremental credit). This separation ensures compliance and maximizes the value captured under the higher rate.
3. Integrate Related Capital Incentives: Companies undertaking substantial capital investments, particularly in the construction or expansion of laboratories, data centers, or manufacturing facilities for quantum components, must assess their eligibility for related incentives. Specifically, the Quantum Computing Campuses credit (Credit Code 5480) provides a 20% credit on qualified construction wages for eligible facilities on designated campuses, demonstrating the state’s commitment to providing a holistic incentive package covering both research and physical infrastructure.6

The QIS credit represents more than just a reduction in tax liability; it is a financial accelerator for the quantum industry, signaling Illinois’ long-term intent to remain the leading nexus for quantum technology research and commercialization.

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