Wisconsin's R&D credit: federal math at state rates, with a partial refund

Wisconsin's research credit is the closest thing among the states to a scaled copy of the federal alternative simplified credit: 5.75% of Wisconsin qualified research expenses exceeding 50% of the prior three years' average Wisconsin QREs, with elevated rates — roughly double — for qualified research relating to internal combustion engines and certain energy-efficient products (as of mid-2026). Its second distinguishing feature arrived more recently: the credit is partially refundable, with the legislature ratcheting the refundable share of unused credit upward over the years, most recently to as much as 25%. Rates and the refundable percentage move; verify current law with the Wisconsin Department of Revenue.

Federal math, Wisconsin inputs

The formula will look familiar to anyone who has computed the federal ASC under Section 41: current-year QREs minus 50% of the trailing three-year average, times the rate. Wisconsin borrows the federal definitions of qualified research and qualified research expenses wholesale — four-part test, wage/supply/contract categories — and restricts them to research performed in Wisconsin. If a company has no Wisconsin QREs in the base years, a reduced-rate computation applies to current spending, again mirroring the federal ASC's no-history rule.

The industry-specific rates are a Wisconsin signature: qualified research related to the design and manufacture of internal combustion engines (including hybrid drives) and certain energy-efficient lighting, building-automation, and power-supply products earns roughly double the general rate — a nod to the state's engine and controls manufacturers.

The chart shows the credit on $5 million of current Wisconsin QREs with a $4 million trailing average (illustrative, as of mid-2026).

Current-year Wisconsin QREs$5,000,000

Base (50% of 3-yr average)$2,000,000

Credit at 5.75% of increment$172,500

Illustrative: increment = $5M − 50% × $4M = $3M; credit = 5.75% × $3M. Engine/energy research earns roughly double. Verify current rates.

The partial refund

Unused credit does not simply carry forward. After the credit offsets the year's franchise or income tax, Wisconsin refunds a percentage of the unused remainder — a share the legislature has increased in steps, reaching up to 25% for recent years — with the balance carrying forward (15 years under the longstanding rule). For a loss-stage company earning a $200,000 credit, that recent design means roughly $50,000 cash now and $150,000 banked; not Iowa-grade refundability, but meaningfully better than the nonrefundable norm. Where this places Wisconsin in the national cash-out landscape is covered in refundable and transferable state credits.

Fit, mechanics, and the trap

Wisconsin's claimants look like Wisconsin's economy: engine and powertrain manufacturers, controls and instrumentation firms, paper and materials science, medical imaging, and a growing software sector. The ASC-style formula favors growing programs but — because the base is only half the trailing average — pays even steady spenders something. Claims are self-assessed on the return with the research credit schedule; the Wisconsin Department of Revenue publishes forms and the current refundable percentage. Pass-through entities compute the credit at the entity level with credits flowing to owners under Wisconsin's rules.

The trap is assuming the federal numbers transfer whole. The formula is federal in shape, but every input must be Wisconsin-sourced — current QREs and all three base years — and companies with shifting footprints (a Chicago engineering office, remote hires post-2020) routinely overstate the Wisconsin base by importing federal totals. The three-year lookback also means today's sourcing sloppiness corrupts three future claims. Tag every expense line with a state of performance now; the reasons are laid out in how state credits differ.