Key figures
Iowa advisory
2026, with sources
The R&D credit changed in 2026
Iowa’s Research Activities Credit was one of the few refundable state R&D credits — a pre-revenue company could get cash back. The Department of Revenue’s annual report confirms it was repealed effective January 1, 2026, with credits still available for tax years beginning in 2025, and the statute itself is removed from the Code on January 1, 2027.
SF 657 (2025) replaced it, for tax years beginning on or after January 1, 2026, with a Research and Development Tax Credit administered by the Iowa Economic Development Authority. A business files a preapplication so IEDA can confirm it is primarily engaged in an eligible sector and actively doing qualified research; an awarded business may claim the credit for up to five years, with recertification available, has its eligible expenditures reviewed each year by a CPA, and files an annual report with IEDA.
The credit is up to 3.5% of the business’s eligible expenditure — qualified research expenses as defined in IRC §41, to the extent incurred in Iowa — and is claimed in the tax year after the one in which the expenses were incurred. It remains refundable, so a pre-revenue company can still receive cash, but all awards together are capped at $40 million a fiscal year. The listed sectors include software and technology, medical equipment, chip technologies and pharmaceuticals; contractors, retailers, wholesalers, finance companies, real estate companies, accountants and publishers, among others, are excluded.
Taxes that are still falling
Iowa finished moving individuals to a flat 3.8% in 2025, and the corporate top rate keeps stepping down whenever receipts allow. Neither is a reason to locate here on its own, but both matter for a founder modeling personal tax on a secondary sale or a company modeling its long-run effective rate.
Where founders go wrong in Iowa
The Iowa mistakes are mostly about timing and exemptions rather than rates.
- Reporting a new hire on the federal 20-day clock — Iowa’s registry requires 15 days.
- Charging Iowa sales tax on SaaS sold to businesses that qualify for the commercial enterprise exemption, or failing to collect an exemption certificate when they do.
- Computing an Iowa R&D credit for 2026 spending on the return without an IEDA award — the new credit is certified, not self-assessed.
- Assuming 1099s go to Iowa — they only do when Iowa tax was withheld.
The federal baseline
This page covers what Iowa adds. The federal rules underneath it apply here too.
Common questions
Can an Iowa startup still get a refundable R&D credit?
Yes, but no longer by computing it on the return. The old Research Activities Credit covers tax years beginning in 2025. For tax years beginning on or after January 1, 2026, SF 657 replaced it with an R&D credit certified by the Iowa Economic Development Authority: up to 3.5% of eligible Iowa research expenses, refundable but not transferable, inside a $40 million statewide cap each fiscal year. It is limited to businesses primarily engaged in advanced manufacturing, bioscience, insurance and finance, or technology innovation; software and technology is one of the listed sectors.
How is a founder’s exit taxed in Iowa?
Iowa’s individual rate is a flat 3.8% for 2026, and since 2023 the Iowa calculation starts from federal taxable income, so a gain excluded federally as QSBS under IRC §1202 is generally excluded in Iowa too. Taxable gain is taxed at 3.8% for a resident.
Advisory next door
- MNMinnesota advisoryMinnesota’s R&D credit is 10% on the first $2 million of research and, since 2025, partly refundable — 25% for 2026 — even for companies with no receipts.
- WIWisconsin advisoryWisconsin’s research credit is 25% refundable, and its qualified Wisconsin business exclusion can make a founder’s long-term gain tax-free in Wisconsin if the company registers in time.
- ILIllinois advisoryIllinois offers a nonrefundable 6.5% R&D credit, caps net loss deductions, and from 2026 taxes QSBS gain the IRS excludes; most founder mistakes come from Chicago’s extra layer.
- MOMissouri advisoryMissouri’s research credit is capped and allocated by the Department of Economic Development. Since 2025, individuals pay no Missouri tax on capital gains.
- NENebraska advisoryNebraska’s Angel Investment Tax Credit gives investors a refundable credit for backing small Nebraska tech companies. Personal and corporate rates are falling to 4.55% in 2026.
- SDSouth Dakota advisoryNo income tax means no R&D credit, NOL or QSBS question. The planning in South Dakota is about sales tax on services and SaaS.
Founder guides on this
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- EquityStock options, 409A valuations and vesting for startupsHow option strike prices are set by a 409A valuation, how vesting and the cliff work, and why ASC 718 makes every grant an expense on your P&L.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the Iowa guide
- AccountingAccounting and state tax in IowaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in IowaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in IowaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in IowaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in IowaRegistering to do business, annual reports, franchise tax and the filing calendar
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
- Iowa Department of Revenue — Research Activities Tax Credit Annual Report
- Iowa Legislative Services Agency — Fiscal Topics: Research and Development Tax Credit (Nov 2025)
- Iowa Department of Revenue — 2026 individual income tax and interest rates
- Iowa Department of Revenue — Order on tax year 2026 corporate income tax rates
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.