Determine Employer Size

A business must determine whether it is a large employer or a small employer to calculate the unadjusted credit and apply for the Research and Development (R&D) Tax Credit. This determination is based on the number of employees the business had during the expense year—the calendar year when the Michigan Qualified R&D Expenses (MQREs) were incurred.

For R&D Tax Credit purposes, an employee is someone who meets the federal definition under Internal Revenue Code (IRC) 3401(c); see MCL 206.605(3). If the business was required to withhold federal income tax for an employee at any point during the expense year, that person is considered an employee for the R&D Tax Credit.

Note: employees of a disregarded entity may not be counted toward the parent business’s employee total. A disregarded entity is treated as a separate employer for this purpose.

Use a point-in-time method to determine employee count for the R&D Tax Credit:

• If the business had 250 or more employees at any time during the expense year, it is considered a large employer.
• If the business had fewer than 250 employees throughout the expense year, it is considered a small employer.