Illinois R&D Tax Credit: Glossary of Terms
Quick Summary: Illinois R&D Credits
The Illinois Research and Development credit, governed by IITA Section 201(k), provides a 6.5% tax credit for increased qualifying research expenses conducted within the state. This nonrefundable credit supports technological innovation and can be carried forward for five years to offset state income tax liabilities.
| Glossary Term & Resource Link | Definition |
|---|---|
| Illinois Income Tax Act (IITA) | The primary legal framework establishing the rules for taxing income earned by residents and businesses. |
| IITA Section $201(k)$ (R&D Credit) | The specific statutory provision in Illinois law that authorizes the 6.5% research and development credit. |
| 35 ILCS $5/201(k)$ | The official legal citation in the Illinois Compiled Statutes regarding the research tax credit incentives. |
| Illinois Department of Revenue (IDOR) | The state agency responsible for administering tax laws and collecting revenue from Illinois taxpayers. |
| Schedule 1299-C | The tax form used by individuals to claim various income tax subtractions and available credits. |
| Schedule 1299-D | The specific tax schedule used by corporations and fiduciaries to report and claim income credits. |
| Schedule 1299-I | A supplemental instruction and worksheet document providing details on calculating various Illinois state income credits. |
| Credit Code 5340 (R&D Credit) | The designated numerical identifier used on Illinois tax forms to specifically reference the R&D credit. |
| Qualifying Expenditures | Costs incurred for increasing research activities that meet legal requirements for the state tax credit. |
| Internal Revenue Code (IRC) Section 41 | Federal tax code governing the research credit, which Illinois law references for qualifying criteria. |
| Qualified Research Expenses (QREs) | Sum of in-house and contract research expenses that satisfy the requirements for tax credit eligibility. |
| Research Conducted in Illinois | To qualify, research activities must be physically performed within the boundaries of the state. |
| Base Amount | The benchmark expenditure level used to determine the incremental increase in qualifying research activities. |
| Average Qualifying Expenditures | The mean value of research spending over the three preceding tax years used for calculation. |
| Credit Percentage (6.5%) | The statutory rate applied to the increase in research expenses to calculate the tax credit. |
| Nonrefundable Credit | A tax credit that can reduce tax liability to zero but cannot result in a refund. |
| Carryforward Period (5 Years) | The timeframe allowed to apply unused R&D tax credits against future Illinois state tax liabilities. |
| Forfeited Credit | Tax credits that remain unused after the expiration of the five-year carryforward period are lost. |
| In-House Research Expenses | Direct costs including wages and supplies incurred for research conducted internally by the business entity. |
| Contract Research Expenses | Payments made to third parties for performing qualified research on behalf of the taxpayer entity. |
| Basic Research Payments (IRC $\S 41(e)$) | Payments for original investigation to advance scientific knowledge without specific commercial objectives or applications. |
| Wages for Qualified Services | The portion of employee compensation paid for performing, supervising, or supporting qualified research activities. |
| Cost of Supplies | Expenses for tangible property used in the research process, excluding land and depreciable property. |
| Rental or Lease Costs of Computers | Amounts paid for the right to use computers to conduct qualified research activities in Illinois. |
| Qualified Research (Four-Part Test) | The standard criteria ensuring research is technological, uncertainty-eliminating, experimental, and related to a business component. |
| Process of Experimentation | A systematic evaluation of alternatives to resolve technical uncertainty through testing and modeling activities. |
| Technological in Nature | Requirement that research must rely on principles of physical, biological, engineering, or computer sciences. |
| Elimination of Uncertainty | Research aimed at discovering information to resolve doubts concerning development, design, or methodology. |
| Business Component | The specific product, process, software, or formula being developed or improved by the taxpayer. |
| New or Improved Function/Quality | Research focused on enhancing the performance, reliability, or quality of a specific business component. |
| Exclusion: After Commercial Production | Research activities conducted once a product is ready for commercial sale are generally ineligible. |
| Exclusion: Adaptation of Existing Component | Activities focused on modifying an existing product for a specific customer's unique requirements are excluded. |
| Exclusion: Duplication of Product | Research involving the reproduction of an existing product from physical examination or blueprints is ineligible. |
| Exclusion: Surveys or Studies | Market research, efficiency surveys, and management studies do not qualify as technical research activities. |
| Exclusion: Internal-Use Software | Software developed solely for internal administrative functions is typically excluded from the tax credit. |
| Exclusion: Research Outside Illinois | Any research activity performed geographically outside of Illinois boundaries is disqualified from this state credit. |
| Exclusion: Social Sciences or Arts | Research in non-technical fields such as humanities, arts, or social sciences is strictly ineligible. |
| Exclusion: Government-Funded Research | Research activities funded by grants or contracts from any person or governmental entity are excluded. |
| Distributive Share of Credit | The portion of the credit allocated to partners or shareholders based on their ownership interest. |
| Pass-Through Entities | Businesses like S corporations or partnerships where tax liabilities pass through to individual owners. |
| Schedule K-1-P | The document used to report a partner’s or shareholder’s share of income and tax credits. |
| IITA Section $201(a)$ and $(b)$ | Statutes defining the general base income tax rates imposed on individuals, corporations, and trusts. |
| IITA Section $201(c)$ and $(d)$ | Provisions establishing the Personal Property Tax Replacement Income Tax for specific business entities in Illinois. |
| Taxable Year | The annual accounting period used for keeping records and reporting income and state tax credits. |
| Unused Credit | The portion of the research credit exceeding current year tax liability available for carryforward. |
| Unitary Taxpayer/Group | A group of related corporations conducting a single integrated business, filing a combined tax return. |
| Written Agreement (Post-2023) | Mandatory documentation required for S-Corps and partnerships to specify the distribution of R&D credits. |
| Public Act 103-0595 | Illinois legislation that officially extended the research and development tax credit through December 2031. |
| Quantum Information Science Credit | An specialized incentive targeting advanced research in quantum computing and information science technologies. |
| Qualifying Quantum Expenditures | Specific costs incurred during the development of quantum-related technologies eligible for enhanced tax incentives. |
