R&D Tax Credit for Manufacturing Companies

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