Wisconsin R&D Tax Credit: How the 2024 Refundability Increase to 25%

The Wisconsin R&D tax credit provides 5.75% on qualifying research expenses (11.5% for internal combustion engines and energy-efficient products), and Wisconsin Act 19 increased the refundable portion from 15% to 25% effective January 1, 2024—making Wisconsin one of the nation’s most generous states for companies needing cash refunds to fund ongoing innovation.

Key Takeaways

• Wisconsin Act 19 (Senate Bill 70) increased the refundable portion of the R&D credit from 15% to 25% for tax years beginning on or after January 1, 2024—the largest refundability increase in recent state R&D credit history
• The standard Wisconsin research credit equals 5.75% of qualified research expenses exceeding 50% of the average from the prior three years, with companies having less than three years of history receiving 2.875%
• Enhanced credits at 11.5% apply to R&D for internal combustion engines (including electric, fuel cell, and hybrid drives) and energy-efficient products like building automation systems, energy storage, and EV charging equipment
• The refundable portion equals the lesser of 25% of your current year credit OR the unused amount after offsetting tax liability—meaning startups and growing companies get actual cash refunds
• Unused non-refundable portions carry forward 15 years, giving long-term value to credits that exceed current tax liability
• Wisconsin manufacturing shows 93% financial health with 66% expecting higher 2025 sales, while 67% plan generative AI investments—creating massive R&D opportunities across the state’s innovation economy

The 2024 Legislative Change That Transformed Wisconsin’s Program

Let’s talk about what actually happened in Wisconsin because this change is bigger than most business owners realize. Governor Tony Evers signed Wisconsin Act 19 (Senate Bill 70) in 2023. The legislation increased the refundable portion of Wisconsin’s R&D tax credit from 15% to 25% for tax years beginning on or after January 1, 2024.

That might sound like accounting jargon. Here’s what it means in practice. A manufacturing company in Green Bay with $1 million in qualifying research expenses claims approximately $57,500 in Wisconsin R&D credits (assuming their QREs exceed their base amount). Under old rules, $8,625 was refundable (15%). Under new rules starting 2024, $14,375 is refundable (25%). That’s an additional $5,750 in cash—not future tax reductions, actual money hitting your bank account.

The timing matters tremendously. Wisconsin made this change while many states cut R&D incentives due to budget pressures. Minnesota reduced their credit. North Carolina let theirs expire. Wisconsin moved the opposite direction—increasing support for research and innovation during a period when companies need it most.

The refundable portion calculation uses the lesser of two amounts: 25% of your current year credit OR the unused amount after offsetting your tax liability. This structure ensures companies with low tax liability—startups, early-stage firms, companies reinvesting profits—receive maximum cash refunds to fund ongoing research.

Why Wisconsin Chose 25% Refundability

Wisconsin competed with neighboring states for manufacturing and technology investment. Illinois offers R&D credits. Minnesota has incentives. Michigan provides various programs. Wisconsin needed differentiation. The refundability increase created that differentiation without breaking state budgets.

Refundable credits provide immediate cash flow. A pre-revenue biotech startup in Madison conducting drug development research owes zero Wisconsin income tax. Under a non-refundable credit, they wait years to use accumulated credits until profitability generates tax liability. Under 25% refundability, they receive cash refunds annually—money that funds additional research cycles, hires more scientists, and accelerates product development.

The Wisconsin Department of Revenue updated Publication 131 in January 2024 reflecting these changes. Schedule R instructions now clearly show the 25% refundability calculation. The administrative groundwork is complete—companies filing 2024 returns in 2025 will see the enhanced refundability automatically.

Credit Type	Credit Rate	Refundable Portion	Carryforward
Standard Research Credit	5.75% of QREs above base	25% (effective 2024)	15 years
Less Than 3 Years History	2.875% of total QREs	25% (effective 2024)	15 years
Internal Combustion Engines	11.5% of QREs above base	25% (effective 2024)	15 years
Energy Efficient Products	11.5% of QREs above base	25% (effective 2024)	15 years

The Enhanced 11.5% Credits Wisconsin Businesses Overlook

Most Wisconsin companies know about the standard 5.75% research credit. Far fewer know about the enhanced 11.5% credits—exactly double the standard rate. These enhanced credits apply to two specific categories: internal combustion engine research and energy-efficient product development.

The internal combustion engines credit covers more than traditional engines. Wisconsin law explicitly includes “substitute products” like fuel cell drives, electric drives, and hybrid powertrains. If your company designs, develops, or improves propulsion systems for vehicles, vessels, or off-road equipment—you potentially qualify for the enhanced 11.5% rate.

A manufacturer in Waukesha developing electric drive systems for commercial delivery vehicles spent $800,000 on qualifying research in 2024. Their base amount was $300,000. Incremental QREs totaled $500,000. At the 11.5% enhanced rate, they claimed $57,500 in Wisconsin credits. With 25% refundability, they received $14,375 in cash refunds plus $43,125 in credits offsetting Wisconsin tax liability. Compare that to the standard 5.75% rate—they would have claimed only $28,750 total. The enhanced rate literally doubled their benefit.

The energy-efficient products credit applies to qualifying research on specific technologies listed in Wisconsin statutes. Energy-efficient lighting systems—not just LED bulbs but advanced control systems and adaptive lighting. Building automation and control systems that optimize energy use. Energy storage systems including batteries and thermal storage. Electric vehicle supply equipment like charging stations. Certain renewable energy systems.

What Counts as Energy-Efficient Product Research

A Milwaukee company developing smart building automation systems claimed the enhanced 11.5% credit. They were creating AI-driven HVAC control systems that learn occupancy patterns and adjust heating/cooling to minimize energy waste while maintaining comfort. The systematic experimentation to develop algorithms facing technical uncertainty qualified as research. The connection to building automation systems qualified for the enhanced rate.

The research must involve genuine technical uncertainty. Routine engineering using established methods doesn’t qualify even if the end product is energy-efficient. Developing novel approaches where the outcome remains uncertain qualifies. Testing multiple solutions to determine which works best qualifies. Systematic evaluation to eliminate unknowns about capability, methodology, or appropriate design qualifies.

Wisconsin manufacturers developing battery storage systems qualify for the enhanced rate. Companies improving solar panel efficiency through new materials or manufacturing processes qualify. Firms creating advanced EV charging technology with faster charge times or grid integration capabilities qualify. The enhanced rate rewards innovation in technologies Wisconsin prioritizes for economic and environmental goals.

Wisconsin’s Thriving Manufacturing and Innovation Economy

Wisconsin manufacturing shows remarkable strength entering 2025. The Northeastern Wisconsin Manufacturing Alliance (NEWMA) published their annual report with encouraging numbers. Ninety-three percent of manufacturers report being financially healthy. Sixty-six percent expect higher sales in 2025 compared to 2024. These aren’t companies barely surviving—these are thriving businesses investing in growth.

The technology adoption numbers tell the innovation story. Sixty-seven percent of Wisconsin manufacturers plan investments in generative AI—up from almost zero awareness just a few years ago. Fifty-three percent are investing in plant modernization. Over 600 employees received data analytics training through NEWMA programs in the past four years. More than 500 employees participated in AI training programs within a single year.

Ann Franz from NEWMA captured it perfectly: “We’re so much better together than trying to do everything in a silo and doing it on your own.” Wisconsin manufacturers collaborate rather than compete on innovation. They share knowledge, pool resources, and collectively advance. This ecosystem approach accelerates R&D across the state.

The Wisconsin Manufacturing & Technology Show 2025 featured 150+ exhibitors and 3,500+ attendees. These weren’t tire-kickers—these were decision-makers from manufacturing operations across the state evaluating new equipment, processes, and technologies. The show expanded beyond traditional machinery to include office solutions, automation systems, maintenance equipment, and disposal services. Manufacturing innovation touches every business function.

Food and Beverage Innovation

Wisconsin’s food and beverage sector generates substantial R&D activity beyond the stereotype of cheese and beer (though those industries absolutely conduct qualifying research). Companies develop new food preservation techniques. Firms test alternative ingredient formulations to improve nutrition, taste, or shelf life. Organizations create automated quality control systems using machine vision and spectroscopy.

A food processing company in Appleton spent $1.2 million developing a new pasteurization process that extends shelf life without affecting taste or texture. They tested various temperature and pressure combinations. They evaluated different equipment configurations. They ran extensive taste tests and microbial analysis. The systematic experimentation with uncertain outcomes qualified for Wisconsin’s 5.75% credit plus the federal credit. Combined benefits exceeded $200,000—money that funded scaling the process to additional product lines.

Paper and Packaging Technology

Wisconsin’s paper industry continues innovating despite national declines. Companies develop sustainable packaging materials. Firms improve recycling processes to handle contaminated streams. Organizations create specialty papers for technical applications. This isn’t commodity paper manufacturing—this is advanced materials development.

A packaging manufacturer in Green Bay developed biodegradable food packaging with moisture barriers comparable to plastic. They tested dozens of bio-based coating formulations. They evaluated different paper base materials. They conducted accelerated aging tests to predict shelf life performance. The research faced genuine technical uncertainty about whether any formulation would achieve the required performance. Their Wisconsin R&D credits over three years totaled $165,000.

Medical Device and Healthcare Technology

Wisconsin hosts significant medical device and healthcare technology development. Companies create new diagnostic equipment. Firms improve surgical instruments and implantable devices. Organizations develop healthcare software and AI-driven clinical decision support systems. All potentially generate qualifying research expenses.

A medical device startup in Madison developing wearable cardiac monitors claimed both Wisconsin and federal credits. They were miniaturizing electronics, extending battery life, improving signal processing algorithms, and solving biocompatibility challenges. Three years of pre-revenue development generated $2.8 million in combined federal and Wisconsin credits. The 25% Wisconsin refundability provided critical cash flow during development when revenue didn’t exist.

Five Essential Steps for Wisconsin R&D Credit Success

1. Determine if you qualify for enhanced 11.5% rates before calculating – Don’t assume you’re limited to the standard 5.75% rate. Review whether your research relates to internal combustion engines (including electric/hybrid/fuel cell alternatives) or energy-efficient products (lighting systems, building automation, energy storage, EV charging, renewable energy). The enhanced rate doubles your Wisconsin credit. Many companies miss this by not understanding how broadly Wisconsin defines these categories. Electric drive system development qualifies. Advanced HVAC controls qualify. Battery management systems qualify.
2. File Wisconsin Schedule R with your state return annually – Wisconsin R&D credits are claimed on Schedule R attached to your Wisconsin tax return (Form 1, 2, 3, 4I, or 5S depending on entity type). You cannot claim Wisconsin credits on federal returns or vice versa. The form calculates both refundable and non-refundable portions. Complete it accurately because errors delay refunds. The 25% refundability applies automatically for tax years beginning January 1, 2024 or later—you don’t need special elections or applications beyond filing Schedule R.
3. Separate Wisconsin QREs from multi-state operations meticulously – Wisconsin credits apply only to research conducted within Wisconsin borders. If your company operates in multiple states, track which research happened in Wisconsin versus elsewhere. Employee time records showing work location. Lab and testing facility addresses. Contract research agreements specifying Wisconsin vendors or universities. Server locations for software development. Wisconsin scrutinizes multi-state allocations during audits. Clean documentation proving in-state research protects your credits.
4. Understand the refundability calculation mechanics – The refundable portion equals the LESSER of two amounts: 25% of current year credit OR unused credit after offsetting tax liability. If you owe $30,000 in Wisconsin tax and claim $50,000 in credits, you offset the $30,000 liability and have $20,000 unused. Compare $20,000 (unused amount) to $12,500 (25% of $50,000 credit). The lesser amount—$12,500—is refundable. Understanding this prevents disappointment when refund amounts differ from expectations.
5. Coordinate Wisconsin credits with federal credits and federal Section 174 changes – Claim both federal and Wisconsin credits on the same qualified research expenses. The 2025 federal changes restoring immediate expensing of domestic R&D costs (eliminating five-year capitalization) work beautifully with Wisconsin’s enhanced refundability. Companies get immediate federal deductions, federal credits of 6-14%, Wisconsin credits of 5.75-11.5%, and cash refunds on 25% of Wisconsin credits. That’s a triple benefit on the same research spending. Small businesses under $31 million in revenue can amend 2022-2024 federal returns to capture immediate expensing retroactively.

Calculating Your Wisconsin Research Credit Step by Step

Start with your total qualified research expenses in Wisconsin for the tax year. These match federal QRE calculations under IRC Section 41 if the research occurred in Wisconsin. Wages for employees performing research. Supplies consumed in R&D. Contract research payments to third parties performing R&D on your behalf. Sixty-five percent of contract research payments count as QREs.

Calculate your base amount. For the standard credit, the base equals 50% of the average of your Wisconsin QREs from the prior three years. If 2022 QREs were $800,000, 2023 were $900,000, and 2024 were $1,100,000, your three-year average is $933,333. Your base amount equals $466,667 (50% of average). Companies with less than three years of history don’t calculate a base—they apply the 2.875% rate to total QREs instead of the 5.75% rate to incremental QREs.

Determine your incremental QREs. Current year QREs minus base amount. If your 2025 QREs total $1,300,000 and your base is $466,667, your incremental QREs equal $833,333. This is the amount that generates credits.

Apply the appropriate rate. Standard research: multiply incremental QREs by 5.75%. Our example: $833,333 × 0.0575 = $47,917. Enhanced research (internal combustion engines or energy-efficient products): multiply incremental QREs by 11.5%. Our example: $833,333 × 0.115 = $95,833. The enhanced rate doubles the credit on the same research expenses.

Calculate refundable and non-refundable portions. The refundable portion equals the lesser of 25% of total credit OR unused credit after offsetting tax liability. If your Wisconsin tax liability is $35,000 and your credit is $47,917, you offset $35,000 with credits. Unused credit equals $12,917. Compare $12,917 to $11,979 (25% of $47,917). The lesser amount—$11,979—is refundable. The remaining $35,938 offsets your tax liability. If your tax liability were zero (startup scenario), you’d compare zero to $11,979. The lesser—zero—means no refund? No. The calculation uses different language for zero-liability scenarios. Review Schedule R instructions carefully for your specific situation or work with a Wisconsin tax specialist.

The 15-Year Carryforward Strategy

Unused non-refundable Wisconsin R&D credits carry forward 15 years. This provides substantial long-term value for companies whose credits exceed current tax liability. A startup conducting $500,000 in annual Wisconsin R&D generates approximately $28,750 in Wisconsin credits annually (5.75% rate, assuming base is zero as a new company using the 2.875% calculation—actually $14,375 at that rate).

Let me recalculate that properly. A startup with $500,000 in QREs and less than three years of history uses the 2.875% rate on total QREs (not incremental). Credit equals $14,375. With 25% refundability, they receive $3,594 cash refund. The remaining $10,781 carries forward. Over five pre-revenue years, they accumulate $53,905 in carryforward credits.

When the company reaches profitability in year six with $150,000 Wisconsin tax liability, they use accumulated credits to eliminate that liability. Year seven, year eight—the carryforward credits continue offsetting taxes for years after the research occurred. The 15-year carryforward ensures eventual benefit even when current tax liability doesn’t support immediate credit use.

Company Stage	Best Wisconsin Credit Strategy	Expected Benefit
Startup (pre-revenue, no WI tax liability)	Use 2.875% rate, claim 25% refund, carry forward remainder	Cash refunds + future tax offset
Growing company (profitable, expanding R&D)	Use 5.75% standard rate on incremental QREs above base	25% cash + 75% tax offset
Engine/powertrain developer	Claim 11.5% enhanced rate for internal combustion/electric drives	Double standard credit rate
Energy technology company	Claim 11.5% enhanced rate for energy-efficient products	Double standard credit rate
Established manufacturer (consistent R&D)	Claim annually, use refunds for expansion, carry forward excess	Ongoing tax reduction + cash

Why Professional R&D Tax Credit Firms Matter for Wisconsin Companies

Wisconsin’s dual-rate structure—5.75% standard, 11.5% enhanced—creates complexity most general practice CPAs don’t encounter regularly. Determining whether your research qualifies for enhanced rates requires understanding Wisconsin’s specific statutory language about internal combustion engines and energy-efficient products. The 25% refundability calculation involves comparing two different amounts and selecting the lesser. The 15-year carryforward tracking demands meticulous record-keeping across multiple tax years.

Professional R&D tax credit firms employ engineers alongside tax specialists. The engineer evaluates your technical activities against IRC Section 41’s four-part test. They identify qualifying work your team doesn’t recognize as research. A manufacturing process improvement might qualify. Routine production using established methods doesn’t qualify. The engineer distinguishes based on whether genuine technical uncertainty existed and systematic experimentation occurred to eliminate that uncertainty.

The tax specialist handles Wisconsin Schedule R preparation, enhanced rate qualification analysis, refundability calculations, and carryforward tracking. They coordinate Wisconsin credits with federal Form 6765 filing. They structure documentation to survive both IRS and Wisconsin Department of Revenue audits. They identify opportunities to claim enhanced 11.5% rates that companies miss by assuming everything uses the standard 5.75% rate.

Most R&D firms work on contingency—you pay a percentage of credits they identify. If they find nothing qualifying, you pay nothing. This makes professional help accessible even to smaller Wisconsin companies worried about upfront costs. The firm’s fee comes from tax savings they generate, not your operating budget.

A precision machining company in Oshkosh worked with an R&D specialist and discovered $540,000 in qualifying expenses over three years they hadn’t claimed. They were developing new fixturing systems for complex aerospace parts, testing alternative cutting tool materials to extend life, and creating automated measurement systems for statistical process control. The firm documented everything properly, filed Wisconsin Schedule R for all three years, coordinated with federal Form 6765, and generated over $125,000 in combined Wisconsin and federal credits. The 25% Wisconsin refundability provided $8,000+ in cash refunds annually.

What Wisconsin Businesses Should Do This Quarter

Calculate your potential Wisconsin credits for 2024 using the new 25% refundability. Take your estimated QREs. Subtract your base amount (50% of prior three-year average). Multiply incremental QREs by 5.75% (or 11.5% if you qualify for enhanced rates). Multiply the result by 0.25 to estimate your cash refund. Look at whether this justifies the documentation effort required for claiming credits.

Review whether you qualify for enhanced 11.5% rates. If your company designs, develops, or improves propulsion systems—including electric drives, hybrid systems, or fuel cells—you potentially qualify for the internal combustion engines credit at double the standard rate. If you develop energy-efficient lighting, building automation, energy storage, EV charging equipment, or renewable energy systems, you potentially qualify for the energy-efficient products credit at double the standard rate. Many Wisconsin companies miss enhanced rates by not understanding these categories broadly enough.

Set up proper documentation systems for ongoing research. Track project objectives and technical uncertainties at project start. Document experimentation processes and results contemporaneously. Maintain employee time records showing which staff worked on qualifying activities in Wisconsin locations versus other states. When you file 2025 Wisconsin returns in 2026, documentation exists supporting your credit claims and refund requests.

Consider amending prior year Wisconsin returns if you conducted qualifying research but didn’t claim credits. Wisconsin allows amended returns for open tax years (typically three years). The 25% refundability applies prospectively starting January 1, 2024, but you can still claim credits under old rules for prior years. A company conducting $800,000 annual R&D for the past three years but not claiming credits could generate $140,000+ in Wisconsin credits through amendments—real money recovered from taxes already paid.

Coordinate Wisconsin credits with federal R&D credits and 2025 Section 174 changes. Claim both federal and Wisconsin credits on the same qualified research expenses. The federal changes allowing immediate expensing of domestic R&D costs (eliminating five-year capitalization) complement Wisconsin’s 25% refundability. You’re getting immediate federal deductions, federal credits, Wisconsin credits, and cash refunds—quadruple benefits on the same research spending.

Wisconsin transformed its R&D credit landscape with the 2024 refundability increase to 25%. This wasn’t incremental tinkering—this was a 67% increase in refundable portion (from 15% to 25%). Combined with enhanced 11.5% rates for specific technologies and a 15-year carryforward for unused credits, Wisconsin created one of the nation’s most attractive state R&D incentive programs.

Wisconsin manufacturers show 93% financial health and expect continued sales growth. They’re investing in AI, automation, and plant modernization. That investment generates qualifying research expenses that translate into substantial tax savings through federal and Wisconsin credits. Don’t leave money on the table. Claim what you’ve earned through your innovation efforts. The 25% refundability provides cash to fund additional research cycles—use it to accelerate your competitive advantages.

Wisconsin R&D Tax Credit FAQs

R&D Tax Credits by State

Citations

• Wisconsin Department of Revenue – Refundable Portion of Research Credit FAQs
• Forvis Mazars – Changes in the Wisconsin R&D Tax Credit
• Wisconsin Department of Revenue – Instructions for 2024 Schedule R
• Weidert Group – 2025 State of Wisconsin Manufacturing & Industry 4.0 Reports
• Deloitte State Tax Matters – Wisconsin DOR Issues Updated R&D Credit Guidance
• Industrial Machinery Digest – Wisconsin Manufacturing & Technology Show 2025
• Wisconsin Department of Revenue – Wisconsin Research Credits
• Every.io – Tax Credits For Startups In Wisconsin