R&D Tax Credit for Manufacturing Companies

Last reviewed October 12, 2026

Manufacturing companies are among the strongest candidates for the R&D tax credit — and among the least likely to claim it. If your team solves engineering problems on the shop floor, those activities may qualify.

What qualifies

Manufacturing R&D qualifies when it meets the four-part test. The credit does not require a laboratory or white-coat research. It covers engineering and process development wherever it happens — the production floor, the tool room, the CAD station.

Common qualifying activities

Process development and improvement

• Designing new manufacturing processes to produce a part to tighter tolerances
• Developing methods to reduce scrap, rework, or cycle time through engineering experimentation
• Adapting production lines to work with new materials where behavior is uncertain
• Developing quality control procedures that require solving measurement or detection challenges

Tooling and fixture design

• Designing custom tooling, jigs, or fixtures to hold, position, or shape parts where the design is not predetermined
• Iterating on tool geometry, material selection, or coating to achieve target performance
• Developing automated tool-change systems or robotic end-effectors for complex assemblies

New product development

• Engineering new products from concept through prototype where form, fit, or function is uncertain
• Developing products to meet new performance specifications, safety standards, or environmental regulations
• Testing material combinations, coatings, or surface treatments where outcomes must be evaluated experimentally

Automation and integration

• Designing automated production cells where integration of robots, conveyors, and control systems requires solving technical problems
• Developing PLC programs or control logic for novel manufacturing sequences
• Building vision inspection systems where detection accuracy is uncertain
• Integrating ERP, MES, or SCADA systems where data flow and synchronization present technical challenges

Material development

• Evaluating alternative materials for strength, weight, corrosion resistance, or cost where trade-offs require testing
• Developing heat treatment, welding, or bonding processes for new material combinations
• Testing material behavior under operating conditions where performance is uncertain

What does not qualify

• Running production using established processes
• Routine quality inspections with known methods
• Maintenance and repair of existing equipment
• Cosmetic changes to products with no engineering uncertainty
• Copying a competitor's product using known techniques

Qualifying expenses for manufacturers

Manufacturing companies typically have QREs across all three categories:

• Wages — engineers, machinists, technicians, and production staff performing or supporting qualifying R&D
• Supplies — raw materials, prototype components, and test specimens consumed during development
• Contract research — outside engineering, testing, or analysis performed on your behalf

Related pages

• What Qualifies — the four-part test in detail
• Qualified Research Expenses — what expenses count
• Documentation Requirements — what records to keep
• Estimate your credit — free calculator

Frequently asked questions

Do manufacturers qualify for the R&D tax credit?

Yes. Manufacturing companies frequently qualify when they develop new products, improve production processes, design custom tooling, test new materials, or develop prototypes. The work must involve technological uncertainty and a process of experimentation.

Does process improvement qualify as R&D?

It can. Improving a manufacturing process qualifies if there is genuine technological uncertainty — for example, developing a new welding technique, optimizing CNC programming for a new material, or engineering a solution to reduce defect rates through technical experimentation.

Are prototype costs eligible for the R&D credit?

Yes. Costs associated with designing, building, and testing prototypes can be qualified research expenses, including employee wages, materials consumed during prototyping, and contractor costs for prototype development.