Industries · Manufacturing

R&D tax credit for manufacturers

For manufacturers, both new or improved products and processes qualify — and shop-floor process engineering is the single most overlooked source of credit. If your team is improving how you make things, you may be doing qualified research right now. A Ricerca study captures it with documentation that holds up.

Why manufacturing qualifies — products and processes

Under §41, a business component is a product or a process. That second word is where manufacturers most often leave money behind: re-engineering how you make a part to raise yield, cut scrap, increase throughput, or hold a tighter tolerance is qualified research when it resolves genuine technical uncertainty through a systematic process of experimentation — even when the product you sell never changes.

Every qualifying activity must pass the IRC §41 four-part test — permitted purpose, technological in nature (engineering and the physical sciences), elimination of uncertainty, and a process of experimentation. Trial runs, tooling development, automation integration, and first-article qualification all tend to map cleanly to this.

The reason it’s missed is cultural: this work looks like “just doing our jobs on the floor,” the time isn’t tracked to the four-part test, and generalist preparers rarely ask about process development. Mapping each activity to the statute — with contemporaneous evidence — is what turns it into a defensible claim.

Qualifying activities

The manufacturing work that commonly qualifies

Representative product and process activities we see meet the four-part test on the shop floor and in engineering.

New & improved products

Developing new products or improving function, performance, reliability, or quality of existing ones.

Process engineering & development

Designing and proving out new or improved manufacturing processes — often the most overlooked source of credit.

Automation & robotics integration

Integrating automation, robotics, and controls where the right configuration must be engineered and tested.

Tooling, dies & fixtures

Developing tooling, dies, molds, and fixtures to make a new part or enable a new process.

Scrap, yield & throughput

Engineering to reduce scrap, raise yield, or increase throughput when the solution isn’t already known.

New materials & treatments

Evaluating new materials, coatings, or treatments to meet performance, cost, or durability requirements.

CNC programming for new parts

Developing CNC programs and machining strategies for new geometries where the approach must be worked out.

First-article & pilot runs

First-article, pilot, and qualification runs that prove out a new product or process before full production.

Quality-driven process changes

Process changes engineered to resolve defects or capability gaps — beyond routine quality control.

Qualified Research Expenses

Typical QRE categories for manufacturers

What spending counts toward the credit — tailored to how manufacturers actually spend.

Technical wages

Wages for engineers, technicians, and shop-floor engineers or supervisors directing qualified product and process development.

§41(b)(2)(A)–(B)

Trial & scrap supplies

Materials consumed in development trials and scrap generated during experimentation — not routine production scrap.

§41(b)(2)(C)

Contract engineering (65%)

65% of amounts paid to U.S. third parties for qualified engineering or development performed on your behalf.

§41(b)(3)

Cloud & compute

Amounts paid to rent compute for simulation or modeling used in qualified product or process research.

§41(b)(2)(A)(iii)

Where the line sits: development trials, pilot runs, and the scrap they generate can qualify; routine production, ongoing quality control, and scrap from a process already in commercial production do not. A study separates qualified development from routine operations before anything is claimed.

Don’t forget §174A

Domestic development is fully deductible again

New IRC §174A restores immediate, full expensing of domestic research & experimental costs for tax years beginning after December 31, 2024 — including qualified product and process development performed in the U.S. Captured alongside the §41 credit, you get the deduction and the credit.

Understand §174A

Illustrative example

What a manufacturing study can look like

A hypothetical scenario to show how the pieces fit together. It is not a quote, projection, or promise of results.

$8M-revenue manufacturer

Illustrative

Technical wages: $900K
Share qualified: ~45%
Trial & scrap materials: $150K
Estimated QRE: ~$555K
Illustrative federal credit: ≈ $33K–$55K

Illustrative only. Figures are hypothetical and rounded; the federal credit commonly works out to roughly 6–10% of QRE depending on method and filing history. Your result depends entirely on your facts. This is not a quote or a guarantee.

FAQ

Manufacturing — frequently asked questions

We already sell the product — does improving how we make it count?

Yes. Both new or improved products and new or improved processes are eligible business components under §41. Process development — re-engineering how you make something to improve yield, throughput, or quality — is one of the most overlooked sources of credit for manufacturers, even when the product itself is unchanged.

Does scrap from development trials count?

Generally yes. Materials consumed and scrap generated while experimenting to prove out a new product or process can qualify as supply QREs under §41(b)(2)(C). Routine production scrap from a process already in commercial production does not — the line is whether you were resolving genuine technical uncertainty.

Does automation and robotics work qualify?

It can. When integrating automation, robotics, or controls requires engineering and testing to resolve technical uncertainty about whether and how the system will perform, the activity can meet the four-part test. Simply purchasing and installing standard equipment without development does not.

Does shop-floor engineering time count?

Yes, when it’s spent on qualified work. Time that engineers, technicians, and supervisors spend performing, directly supervising, or directly supporting qualified product and process development is eligible wage QRE. Capturing it well means mapping that time to specific business components and the four-part test.

Does §174A apply to our domestic development?

Yes. Domestic research & experimental costs are eligible for immediate, full expensing under §174A for tax years beginning after December 31, 2024 — so qualified product and process development performed in the U.S. can be deducted now. See our Section 174A guide.

We’re a small shop — is it worth it?

Often, yes. Even modest technical wages and trial materials can add up to a meaningful credit, and qualified small businesses may apply the credit against payroll taxes. Contact us and we’ll help you gauge the opportunity for your facts.

See what your shop floor qualifies for

Tell us about your products and processes, and we’ll map your qualifying product and process development to the four-part test — including §174A domestic expensing — reviewed and finalized by R&D experts and backed by Audit Protection. Contact us for pricing tailored to your study.