41-128: IA 128 Research Activities Tax Credit 41-128 (2025)
Iowa · Iowa DOR · Used for tax years 2025
The 2025 IA 128 calculates Iowa's Research Activities Tax Credit using qualified research expenses and the share of research occurring in Iowa. It also reports supplemental research credits and credits received from pass-through entities.
Who files this form
Use IA 128 to claim the regular Iowa Research Activities Tax Credit (RAC), including a credit received from a pass-through entity. Use IA 128S for the alternative simplified credit. The researching business must use the same calculation method it used for its federal research credit.
The instructions generally require the researching business to:
- File the credit form on time.
- Claim and be allowed the federal research credit for the same tax year.
- Conduct research in an eligible Iowa industry: manufacturing, life sciences, agriscience, software engineering, or aviation and aerospace.
The instructions list ineligible businesses, including agricultural producers, agricultural cooperatives, retailers, wholesalers, finance or investment companies, and certain professional, construction, and repair businesses. Separate rules apply to certain innovative renewable energy generation costs under the High-Quality Jobs Program.
What you'll need
Have these forms and details ready:
- Federal Form 6765, which supplies the U.S. research expense amounts used on IA 128.
- Your name, SSN or FEIN, tax period ending date, and qualified industry.
- Iowa research wage, supply, contract research, and basic research payment amounts, as applicable.
- Average U.S. annual gross receipts for 2021 through 2024 for the 2025 calculation.
- The pass-through entity’s name, FEIN, and credit amounts, if you received a credit from another entity.
- Each group member’s name, FEIN, and Iowa qualified research expenses if you must complete Schedule A.
- Your IEDA award information and tax credit certificate number if claiming a supplemental credit.
Include IA 128, Federal Form 6765, and the 2025 IA 148 Tax Credits Schedule with an IA 1040, IA 1041, or IA 1120 return. Include IA 128 and Federal Form 6765 with an IA 1065 or IA 1120S return.
How to file
- Enter your identifying information and answer the eligibility questions in Part I. If you are only claiming a pass-through credit, the form directs you to Part III, line 37.
- For research conducted by your business, complete Part II for U.S. research expenses and Part III for the Iowa credit. Use dollars and cents.
- Complete Schedule A if calculating the credit as a controlled group or group of businesses under common control. Report your share on line 35.
- Include IA 128 and the required accompanying forms with your Iowa return. The supplied text does not give a mailing address or e-filing directions.
For a credit earned by the researching business, file IA 128 claiming an amount on line 34 or 35 by that business’s Iowa return due date, including extensions. An increase to a properly claimed credit is allowed only within six months of that due date, including extensions, or when the increase results from an IRS or Iowa Department of Revenue audit.
For IA 1040, IA 1120, and credits claimed at the entity level on IA 1041, report regular credits on IA 148, Part V, using code 58. Report supplemental credits using code 59 and the IEDA tax credit certificate number. List each credit separately. Pass-through entities report allocated credits on the applicable schedules and Schedules K-1.
Common mistakes
- Counting all Iowa supply costs. For tax years beginning during 2025, only 40% of qualifying Iowa supply costs are eligible.
- Including third-party computer-use expenses as Iowa research expenses. These expenses no longer qualify for the Iowa calculation.
- Skipping the Iowa wage and contract research restrictions. Exclude amounts that fail the applicable majority-work limitation. For wages, use the employee’s actual qualified wage allocation rather than rounding an allocation of at least 80% up to 100%.
- Combining pass-through claims. File a separate IA 128 for each pass-through RAC or supplemental RAC received, and provide the entity information.
- Making special pass-through allocations. Credits must be allocated according to each member’s share of the entity’s earnings. Special allocations are not permitted.
- Leaving an overstated claim unchanged. If a researching business or pass-through claimant discovers an overstatement, it must reduce the credit on an amended Iowa return.
Questions people ask
Can I use a different calculation method for Iowa than for my federal credit?
No. Use the same method used for the federal research credit. IA 128 is for the regular method, and IA 128S is for the alternative simplified method.
What if I earned a credit and also received one from a pass-through entity?
Calculate your earned credit on lines 2 through 34, or line 35 if applicable, and enter the pass-through RAC on line 37. Report each credit separately. The instructions also require a separate IA 128 for each pass-through credit received.
Is the credit fully refundable for 2025?
No. For tax year 2025, the refundable portion is limited to 70% of the Iowa RAC and 85% of the Iowa Supplemental RAC that exceeds your Iowa tax liability. Amounts exceeding these refund limits cannot be carried forward to another tax period.
Who can receive the Iowa Supplemental RAC?
Businesses with tax incentive contracts under the High Quality Jobs Program may receive an award from the Iowa Economic Development Authority. The allowable supplemental credit is the lesser of the available IEDA award or the maximum calculated under the instructions.