State R&D Credits · Brief · Working level
Indiana's research expense credit: 15% on the first million of growth
Indiana pays 15% on the first $1 million of incremental in-state qualified research expenses and 10% above that, nonrefundable with a 10-year carryforward. A straightforward, generous credit for companies growing research in the state.
Indiana's research expense credit is one of the more generous incremental credits in the country by headline rate: 15% of the first $1 million of Indiana qualified research expenses over the base amount, and 10% of the increment beyond that (as of mid-2026). It is nonrefundable, carries forward 10 years, and — unlike some states — flows through to owners of pass-through entities. The legislature adjusts credit provisions periodically, so confirm current law with the Indiana Department of Revenue before relying on the figures here.
Computation: federal definitions, Indiana increment
Indiana borrows the federal Section 41 definitions of qualified research and qualified research expenses — the four-part test, the wage/supply/contract-research categories — but restricts the base to research conducted in Indiana. The credit is incremental: current-year Indiana QREs minus a base amount computed in the federal style, with the two-rate structure applied to the excess.
The chart shows the credit on $2 million of incremental Indiana QREs under the two-tier structure (as of mid-2026; illustrative).
Illustrative: 15% on the first $1M of increment, 10% on the second $1M. Rates as of mid-2026; verify current law.
Indiana also permits an alternative computation modeled on the federal alternative simplified credit — a percentage of QREs over 50% of the prior-three-year average — at a lower rate. Companies without clean base-period data, or with erratic spending histories, sometimes fare better under it; the choice is annual, so run both.
Refundability, carryforward, and who benefits
The credit is nonrefundable with a 10-year carryforward and no carryback. That profile rewards profitable companies and steadily growing research programs; a loss-stage startup earns credits it cannot monetize until Indiana taxable income appears — a real contrast with the cash-out regimes cataloged in refundable and transferable state credits.
The pass-through treatment is a genuine advantage. The credit allocates to owners of S corporations, partnerships, and LLCs, offsetting their individual Indiana adjusted gross income tax. Manufacturers, medical-device firms, agricultural technology companies, and engineering-heavy businesses concentrated in Indiana are the natural claimants: high in-state wage bases, growing spend, and enough owner-level or entity-level liability to absorb the credit.
Mechanics and the trap
The credit is claimed on the Indiana return with the state's research expense credit schedule — self-assessed, no application or statewide cap, which makes it administratively lighter than the application-based regimes in Virginia or Maryland. The Indiana Department of Revenue publishes the current forms and instructions.
The recurring trap is the base amount. Because the credit is incremental in the federal regular-method style, it requires Indiana-sourced historical data — in-state QREs and the associated gross-receipts mechanics for the base computation. Companies that built their federal study without a state-of-performance field on each expense line find themselves reconstructing Indiana history years after the fact, and an unsupported base is the first thing the state examines. The second, quieter issue: multistate companies sometimes claim their entire federal QRE pool as Indiana QREs because headquarters sits in Indianapolis; wages follow where the research is performed, not where payroll is processed.
When the credit does not make sense: companies with flat or declining Indiana research spending earn little or nothing from an incremental design, and loss companies with no realistic path to Indiana liability within 10 years are accruing an asset that may expire. For the broader framework on sourcing, conformity, and monetization across states, see how state credits differ; for a contrasting volume-based design, see South Carolina.
Frequently asked questions
- What is the Indiana R&D tax credit rate?
- As of mid-2026, Indiana's research expense credit equals 15% of the first $1 million of incremental Indiana qualified research expenses — the excess over a base amount — and 10% of the increment above $1 million. Indiana also offers an alternative computation modeled on the federal alternative simplified credit at a lower rate. Verify current rates with the Indiana Department of Revenue.
- Is the Indiana research credit refundable?
- No. The Indiana research expense credit is nonrefundable — it offsets Indiana adjusted gross income tax liability only. Unused amounts carry forward up to 10 years. There is no carryback and no refund or transfer mechanism, so loss companies accrue carryforwards rather than cash.
- Can pass-through entities claim the Indiana research credit?
- Yes. The credit passes through to shareholders, partners, and members of S corporations, partnerships, and LLCs in proportion to their ownership, and offsets their Indiana adjusted gross income tax. That makes Indiana friendlier to pass-through structures than states whose credits run only against a corporate-level tax.