Short answer. For tax years beginning in 2026, Iowa replaced its old Research Activities Credit with an application-based program run by the Iowa Economic Development Authority. The award is up to 3.5 percent of your qualifying Iowa research expenses, down from 6.5 percent, refundable, capped at $40 million statewide and allocated pro rata.
Key facts
| Rate | Up to 3.5% of Iowa QRE (IEDA award) |
|---|---|
| Effective | Tax years beginning in 2026 (Senate File 657) |
| Refundable | Yes |
| Statewide cap | $40M, allocated pro rata |
| Process | Annual application by Jan 31 + independent CPA verification |
A rate you apply for, not one you claim
Senate File 657 changed how Iowa's credit works for 2026.
For most of its life, Iowa's Research Activities Credit was 6.5 percent of qualifying research, refundable, and claimed straight on the return. Senate File 657, signed June 6, 2025, retired that credit for tax years beginning in 2026 and replaced it with an application-based program run by the Iowa Economic Development Authority.
You pre-certify with the IEDA, then apply each year by January 31 with an independent CPA's verification of your Iowa research expenses. The IEDA, not your return, sets the credit.
Up to 3.5 percent, capped and prorated
The headline number is a ceiling, and the statewide cap can pull it lower.
The IEDA may approve an award of up to 3.5 percent of your qualifying Iowa research expenses, down from the old 6.5 percent. The exact rate is at the Authority's discretion within that ceiling. Awards are limited to $40 million statewide per year and allocated pro rata, so a year with heavy demand scales every award down. You do not know your final number until the IEDA issues a tax credit certificate.
Refundable, sector-limited
What you keep, and who qualifies.
A credit that exceeds your Iowa tax can be refunded, and unused amounts carry forward; the credit is not transferable to another taxpayer. The program is limited to qualifying sectors. Software generally falls under the technology and innovation sector, but because the program is application-based and sector-gated, Iowa documentation is scoped per engagement rather than offered as a flat add-on.
More on Iowa'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.
- Iowa Senate File 657 (research credit program overhaul, 91st General Assembly) - Iowa Legislature
- Iowa Economic Development Authority, Research and Development Tax Credit Program - Iowa Economic Development Authority
- 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 Iowa state workpaper from one engagement, both built to survive an exam.