Key figures
Minnesota advisory
2026, with sources
The R&D credit became partly refundable
Minnesota’s credit for increasing research activities is one of the richer state credits for early-stage companies: 10% of Minnesota qualified research expenses up to a $2 million base amount and 4% above, using Minnesota sales for the base calculation and not allowing the federal alternative simplified method. It carries forward 15 years.
From tax years beginning after December 31, 2024, part of each year’s credit is refundable once tax is reduced to zero: 19.2% for 2025 and 25% for 2026 and 2027, with the rate set annually (up to 25%) from 2028. The election has to be made on a timely filed return, extensions included — a late M4 forfeits the cash.
Remote hires bring Paid Leave and ESST with them
Hiring one person in Minnesota brings more than withholding: Paid Leave premiums from the first quarter of wages, earned sick and safe time from the first hour, and DEED’s joint UI and Paid Leave reporting. Reciprocity is narrow — only Michigan and North Dakota — so a Wisconsin or Iowa resident working in Minnesota has Minnesota tax withheld.
Minnesota Secure Choice, the state retirement program, covers employers with five or more covered employees that don’t sponsor or contribute to a retirement plan.
Where founders go wrong in Minnesota
Minnesota’s rules are generous to research and strict on payroll; most surprises are payroll costs and elections with deadlines.
- Not budgeting the Paid Leave premium (0.88%, or 0.66% for small employers) as an employer cost from January 2026.
- Missing the minimum fee in loss years.
- Treating SaaS as untaxable by default; Minnesota taxes prewritten software however it’s delivered.
- Filing the M4 late and losing the refundable R&D credit election.
- Assuming a Wisconsin-resident employee is covered by reciprocity; it ended in 2010.
The federal baseline
This page covers what Minnesota adds. The federal rules underneath it apply here too.
Common questions
Will Minnesota pay us for our research before we have revenue?
Yes, partly, from 2025. Minnesota’s credit is 10% of Minnesota qualified research expenses up to a $2 million base amount and 4% above. For tax years beginning after December 31, 2024, a share of the current-year credit left after tax is reduced to zero is refundable — 19.2% for 2025 and 25% for 2026 and 2027 — if you elect it on a timely filed return. Companies with research expenses but no receipts can still claim it.
Does Minnesota follow the federal QSBS exclusion?
Minnesota’s individual tax starts from federal adjusted gross income, so a federal QSBS exclusion generally carries through, subject to the Code as Minnesota has adopted it for the year of sale. Minnesota’s top individual rate is 9.85%, so the stakes for a founder who lives in Minnesota at exit are high enough to confirm conformity with a preparer.
Advisory next door
- IAIowa advisoryIowa replaced its Research Activities Credit in 2026 with an IEDA-certified R&D credit of up to 3.5% of Iowa research spending, refundable and capped at $40 million a year. Individuals pay a flat 3.8%.
- NDNorth Dakota advisoryNorth Dakota’s research credit is 25% on the first $100,000 of excess expenses and can be sold by certified primary sector startups. WSI is the only workers’ comp carrier.
- 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.
- 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.
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.
- SAFEsHow to account for SAFEs on your balance sheetA SAFE is cash today and shares later. Why it usually sits with liabilities, how the cap and discount set conversion, and what to book at the priced round.
- RunwayBurn rate and runway: how to calculate them correctlyGross burn, net burn and months of runway, done the way an investor checks them: from cash, averaged, and with the hires you’ve already committed to.
More of the Minnesota guide
- AccountingAccounting and state tax in MinnesotaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in MinnesotaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in MinnesotaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in MinnesotaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in MinnesotaRegistering 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.
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.