Written by: Brian Anderson − Director, Credits & Incentives
Beginning in 2026, Iowa will roll out a dramatically restructured incentive system that signals a new era of economic development policy in the state. Long-standing, broad-based programs are being retired in favor of a more targeted, outcomes-driven framework that emphasizes innovation, fiscal restraint, and accountability.
For companies considering where to grow, this represents both opportunity and challenge. Iowa is not eliminating its support for business investment—it’s reshaping it. The key question for executives, developers, and investors is whether their project will align with Iowa’s new priorities, and how best to navigate the heightened competition for capped resources.
A Shift in Philosophy
For years, Iowa’s incentives leaned toward accessibility and broad use. The Research Activities Credit (RAC) and High Quality Jobs Program (HQJP) were workhorses for manufacturers, life sciences firms, software developers, and more. Together, they offered substantial tax relief with relatively predictable outcomes.
Starting in 2026, those programs are being replaced by:
- The R&D Tax Credit – a more narrowly defined, capped credit that applies only to advanced manufacturing, bioscience, insurance/finance, and technology.
- Business Incentives for Growth (BIG) – a scaled-back version of HQJP, with lower project caps and stricter requirements.
These shifts reflect Iowa’s intention to invest in targeted sectors while exercising closer oversight of public dollars. Refundable credits remain available, but allocations are smaller, oversight is tighter, and outcome reporting is mandatory.
Key Changes Businesses Should Watch
R&D Tax Credit
- Scope is limited to four industries and defined sub-sectors
- Credits capped at $40 million statewide—roughly half of historic RAC payouts
- Allocations will be pro rata, meaning companies won’t know their final credit until after the state divides the pool
- CPA verification, annual reporting, and reapplication requirements add compliance layers
Business Incentives for Growth (BIG)
- Annual cap reduced to $50 million (down from $68 million)
- Incentives capped at 5% of project investment (7.5% for rural projects)
- Property tax abatements are limited to 10 years (previously 20)
- The Iowa Economic Development Authority (IEDA) gains discretion to deny overlapping incentives and impose clawbacks if commitments aren’t met
Seed Investor Tax Credit
- Designed to drive capital formation in early-stage businesses
- Higher credit rates in rural areas (up to 35%)
- Tilted toward startups under $10 million valuation, creating opportunities for rural innovation hubs
Film Production Pilot
- A carefully controlled re-entry into film incentives
- $4 million cap, strict eligibility, and in-state requirements
Endow Iowa Adjustments
- Charitable giving credit remains, but with reduced statewide and individual caps
Taken together, these changes represent Iowa’s pivot from open-ended programs to capped, strategically distributed resources.
| PROGRAM TYPE | OLD PROGRAM | 2026 PROGRAM |
|---|---|---|
| STARTUP/CAPITAL FORMATION | ANGEL INVESTOR CREDIT • 20% credit on investments • $100K per investor/$500K per business caps | SEED INVESTOR TAX CREDIT • 20% credit (urban), 35% credit (rural) • Same $100K/$500K caps • Businesses must be <5 yrs, <$10 million valuation, Iowa-based • $10 million combined statewide cap with Innovation Fund Credit |
| CHARITABLE GIVING | ENDOW IOWA (LEGACY VERSION) • $6 million statewide cap • $100K per individual donor | ENDOW IOWA (REVISED) • $3.5 million statewide cap • $50K per individual donor • New compliance requirements |
| JOBS/INVESTMENT | HIGH QUALITY JOBS PROGRAM (HQJP) • Income tax credits, sales and use tax refunds, property tax abatements • Incentives up to 10% of project cost • $68 million annual cap • Property tax abatements up to 20 years | BUSINESS INCENTIVES FOR GROWTH (BIG) • Income tax credits, sales and use tax refunds, property tax abatements • Incentives capped at 5% of project cost (7.5% for rural) • $50 million annual cap • Property tax abatements capped at 10 years • Stricter clawbacks, IEDA discretion |
| FILM/MEDIA | NO PROGRAM (prior program repealed after misuse) | FILM PRODUCTION PILOT • 2-year pilot • Studios must be Iowa-based ≥3 yrs • $1 million+ production budget, all in-state spend • Rebates up to 30% of qualifying costs • $4 million annual cap |
| R&D | RESEARCH ACTIVITIES CREDIT (RAC) • Modeled on federal R&D credit • Broad industry eligibility (manufacturing, life sciences, agriscience, software, aerospace) • Refundable, uncapped • Up to 6.5% of QREs • Claims $77.6 million in FY24 | R&D TAX CREDIT • Limited to 4 industries (advanced manufacturing, bioscience, insurance/finance, tech/innovation) • 3.5% of QREs • $40 million statewide cap (pro rata allocation) • CPA review + IEDA pre-approval • Annual reporting, 5-year reapplication |
Opportunities and Risks for Developers and Investors
For businesses in Iowa’s target sectors—particularly advanced manufacturing, bioscience, and technology—the state still offers meaningful opportunities. Refundable credits remain in play; rural projects enjoy a boost, and startups can benefit from early-stage investor incentives.
However, the reduced caps and competitive allocations mean companies will face uncertainty. Simply qualifying is no longer enough. Businesses must demonstrate how their projects create jobs, boost wages, and align with Iowa’s growth priorities.
Investors should also be mindful of the greater discretion granted to IEDA. Decision-making is shifting from formula-driven awards to negotiated, discretionary allocations. This adds complexity but also opens the door for companies that can clearly articulate the economic impact of their projects.
Looking Ahead
Iowa’s 2026 incentive overhaul is a reminder of a larger trend: incentives are becoming more targeted, competitive, and compliance-driven. For businesses willing to adapt, Iowa can still be a compelling place to grow—particularly for companies in innovation-driven industries and those considering rural development.
Success will hinge on preparation, strategic positioning, and careful compliance management. With the right approach, companies can thrive in Iowa’s new incentive landscape while contributing to the state’s broader goals of innovation and economic sustainability.
The Role of a Trusted Partner
As states like Iowa recalibrate their incentive strategies, companies need both strategic insight and practical execution to succeed. Incentive programs are evolving nationwide—caps are shrinking, compliance is intensifying, and economic development authorities are taking a more active role in shaping outcomes.
DMA has deep experience helping organizations navigate these transitions. From aligning projects with state priorities to managing the application, compliance, and reporting processes, DMA brings the perspective businesses need to reduce uncertainty and maximize opportunity.
Thinking about expanding your business to Iowa or another state?
Partner with DMA’s experts to navigate evolving incentives and position your business for growth.