Short answer. Illinois's research credit is 6.5 percent of the increase in Illinois research spending over a three-year average base. It is non-refundable, carries forward five years, and is authorized through tax years ending before January 1, 2037.
Key facts
| Rate | 6.5% of the increase in Illinois QRE |
|---|---|
| Base | Average Illinois QRE for the prior 3 years |
| Refundable | No |
| Carryforward | 5 years |
| Authorized through | Tax years ending before Jan 1, 2037 |
6.5 percent over a moving base
The rate is fixed; the base moves every year.
The credit at 35 ILCS 5/201(k) is 6.5 percent of the amount by which your current-year Illinois qualified research expenses exceed a base. The base is the average of your Illinois QRE for the three immediately preceding years, a moving average rather than the federal fixed-base percentage. Only research conducted in Illinois counts toward either the current year or the base.
Because the base is a three-year average, a company growing its Illinois research fast earns more credit, while flat spending against a rising base earns less. The qualified expense definition tracks federal Section 41, limited to Illinois.
Non-refundable, five-year carryforward
The rate offsets Illinois tax and banks what you cannot use.
The credit is non-refundable: it reduces Illinois income tax and cannot produce a cash refund. Unused credit carries forward five years. For a growing software company, the planning question is less about the rate and more about banking credit in high-growth research years, then drawing it down as Illinois tax appears.
Authorized through 2036
Illinois has run this credit on a sunset clock for years.
The current authorization comes from Public Act 104-468, effective June 16, 2026, which extended the credit (Credit Code 5340) to tax years ending before January 1, 2037. The previous extension, Public Act 103-0595, had run it to January 1, 2032. The credit has lapsed and been renewed before, so the date is worth tracking, but the five-year carryforward means credit earned before a lapse stays usable. The credit is claimed on Schedule 1299-D, supported by Schedule 1299-I.
More on Illinois's R&D credit
The full state overview, the federal Section 41 work it builds on, and related state guides:
Sources
Every claim on this page traces to a primary authority. Each source below is independent and verifiable.
- Illinois Public Act 104-468, Article 825 (extends 35 ILCS 5/201(k) to tax years ending before January 1, 2037; effective June 16, 2026) - Illinois General Assembly
- 35 ILCS 5/201(k), Illinois Income Tax Act, research and development credit (as amended) - Illinois General Assembly
- Crowe, Illinois enacts major tax changes (August 2026) - Crowe LLP
- Illinois Public Act 103-0595 (research credit extension, 35 ILCS 5/201(k)) - Illinois General Assembly
- Illinois Schedule 1299-I, Income Tax Credits Information and Worksheets - Illinois Department of Revenue
- 26 U.S.C. ยง 41 (credit for increasing research activities) - Cornell Law School, Legal Information Institute
Get documentation built to survive an exam
R&D Binder produces the federal Section 41 binder and the Illinois state workpaper from one engagement, both built to survive an exam.