Businesses that plan to claim Iowa’s Research & Development (R&D) Tax Credit for 2026 should take note of a significant change to the program. Iowa has replaced its traditional Research Activities Credit with a new application-based R&D Tax Credit program that requires businesses to obtain approval before they can claim the credit.
For many manufacturers and other innovation-driven businesses, taking action now will be critical. A September 30, 2026, application deadline will apply for businesses seeking certification for tax years beginning on or after January 1, 2026. Failure to meet the deadline could result in losing access to the credit for the 2026 tax year.
What Has Changed?
Under the prior Iowa R&D credit program, eligible businesses calculated the credit and claimed it with their Iowa income tax return.
Starting with tax years beginning on or after January 1, 2026, businesses must first be certified by the Iowa Economic Development Authority (IEDA) as a qualified business before they can apply for and claim the credit.
This change creates a two-step process:
Step 1: Obtain Qualified Business Certification
Businesses must submit a precertification application through Iowa’s Opportunity Iowa portal and receive approval from IEDA. Certification generally remains in effect for up to five years, provided program requirements continue to be met. Applications for the initial certification period must be submitted no later than September 30, 2026.
Step 2: Submit an Annual Credit Application
Once certified, businesses must apply annually for the credit based on their eligible Iowa research expenditures. The application requires detailed R&D expense information, along with verification from an independent CPA.
Because certification is a prerequisite to claiming the credit, businesses that fail to apply by the deadline may be unable to claim the credit for the applicable certification period.
Who Is Eligible?
The new program is more targeted than its predecessor. To qualify, a business must be primarily engaged in one of the following industries:
- Advanced manufacturing
- Bioscience
- Insurance and finance
- Technology and innovation
IEDA will evaluate several factors when determining eligibility, including:
- NAICS classification
- Revenue sources
- Customer base
- Business operations
- Iowa-based research activities
As a result, performing research or software development activities alone may not be sufficient if the company’s primary business falls outside one of the designated industries.
How Much Is the Credit Worth?
The new credit may equal up to 3.5% of eligible Iowa research expenditures.
Unlike the previous credit, which limited certain wage and supply costs that could be included in the calculation, the new program generally allows qualified research expenditures under Internal Revenue Code Section 41 that are conducted in Iowa.
Additional features of the program include:
- The credit remains refundable.
- The credit is not transferable.
- A statewide annual funding cap of $40 million applies.
- If approved applications exceed available funding, credits may be reduced on a prorated basis.
- Credits are awarded and claimed on the tax return for the year following the year qualifying expenditures were incurred. This means there is a gap year, where taxpayers will not claim a credit on the 2026 return, as credits related to 2026 expenditures will be claimed in 2027.
Why Businesses Should Start Preparing Now
The precertification process requires more than basic company information. Businesses may be asked to provide:
- Organizational records
- Federal and Iowa tax returns
- Information on related entities
- Descriptions of business operations
- Documentation supporting Iowa research activities
IEDA may also request additional information during its review process.
With certification reviews expected to take up to 90 days after a complete application is submitted, businesses should begin evaluating eligibility and gathering documentation well in advance of the September 30 deadline.
What Manufacturers and Innovative Businesses Should Do Next
If your business currently claims the Iowa R&D credit, or plans to do so in the future, now is the time to determine whether you qualify under the new rules and what documentation will be required.
The transition to a certification-based process represents one of the most significant changes to Iowa’s R&D incentive program in years. Early preparation can help ensure your business remains eligible and avoids missing an important tax-saving opportunity.
How Honkamp Can Help
We can help you evaluate eligibility, understand how the new rules apply to your business, coordinate with your advisors, and prepare for the certification and application process.
If your company conducts research, product development, software development, process improvement activities, or other qualifying innovation efforts in Iowa, connect with us to discuss how these changes may affect your tax planning strategy.
This article is for informational purposes only and reflects currently proposed guidance regarding Iowa’s new R&D Tax Credit program. Final requirements and deadlines remain subject to state guidance and approval.