The Illinois R&D tax credit, explained
Illinois offers a 6.5% state R&D credit on qualified spending above a rolling three-year base, extended through 2031.
Last verified July 2026 against Illinois Department of Revenue guidance.
The short answer
Yes. Illinois offers a research and development credit worth 6.5% of Illinois qualified research expenses that exceed a base amount. The base amount is the average of the company's qualified research spending over the prior three tax years, so it moves each year rather than staying fixed.
How the Illinois credit works
Illinois has let this credit lapse before, most recently expiring for a stretch of years before being reinstated. The legislature most recently extended it through Public Act 103-0595, and it now applies through tax years ending on or before December 31, 2031.
The credit is nonrefundable. It offsets Illinois income tax, and there is no small-business set-aside, competitive award, or transfer program the way some other states have. Any company that meets the qualified research test and does the calculation can claim it, with no application or approval required.
How it stacks with the federal credit
Illinois' credit stacks with the federal R&D credit, worth roughly 6% to 10% of qualified spending. Startups under $5 million in revenue can apply up to $500,000 of the federal credit against payroll tax each year, which is usually the larger near-term benefit for an early-stage Illinois company.
Take a Chicago software startup with 24 engineers and an average salary of $128,000, or about $3.07 million in wages. If qualified research spending comes to $2.8 million for the year, and the prior three years averaged $1.6 million, the incremental $1.2 million produces about $78,000 in Illinois credit at 6.5%.
At a federal rate near 7%, the same $2.8 million in spending could produce about $196,000 in federal credit, most of it usable against payroll tax right away. The Illinois credit adds a smaller amount on top, and since it is nonrefundable, a company with little Illinois income tax due will carry most of it forward. This is an example, and actual figures depend on wages, base-period spending, and each company's Illinois tax liability.
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Eligibility and how to claim it
Any company doing qualified research in Illinois can claim the credit, using the same four-part test as the federal credit: technological in nature, aimed at eliminating uncertainty, involving a process of experimentation, and intended to improve a product or process.
Companies work out the qualified expenses and base amount on Schedule 1299-I, then claim the credit on Schedule 1299-D for corporations and fiduciaries, or Schedule 1299-A for partnerships and S corporations, which allocate the credit to owners pro rata through Schedule K-1-P.
Claimship prepares the research study and the underlying numbers for Schedule 1299-I. Your CPA is the one who files Schedule 1299-D or 1299-A with the Illinois Department of Revenue as part of your state return.
Official source: Illinois Department of Revenue.
Carryforward and deadlines
There is no separate application. Companies calculate the credit and claim it on the applicable schedule when they file their annual Illinois return.
Unused credit carries forward up to 5 years, or until fully used, whichever comes first, with no carryback. Because Illinois has let this credit expire before, it is worth confirming the current sunset date, now set at tax years ending on or before December 31, 2031, closer to that time.