Medical Equipment Manufacturers R&D Tax Credits

Maximize innovation in medical equipment manufacturing. Manufacturers of imaging systems, diagnostics instruments, hospital‑scale scales, ancillary hardware and integrated equipment across the U.S. are advancing design, automation, materials, connectivity and manufacturing workflows. Many of these initiatives satisfy the criteria for the federal R&D Tax Credit under IRC §41, with additional state‑level opportunities.

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Examples of qualifying activities in medical equipment manufacturing

Prototype build & validation First‑article builds of new imaging/diagnostic hardware, new material/composite components, integration of sensors/data modules.
Manufacturing process innovation Introducing robotics, custom tools, automated inspection, high‑precision assembly cells, side‑by‑side yield/defect benchmarking.
Software/firmware integration in equipment Developing embedded control systems, connectivity modules, remote monitoring/diagnostic features in equipment.
Materials and biocompatibility innovation Selecting new composites, coatings, sterilisation‑compatible parts, environmental/thermal stress testing.
Connectivity/IoT and predictive maintenance integration Embedding sensors in equipment, developing analytics for device usage/lifecycle, side‑by‑side pilot testing of smart maintenance systems.

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What qualifies as R&D in medical equipment manufacturing?

To qualify, your manufacturing‑related activities must:

Aim at a permitted purpose — such as a new or improved equipment design, upgraded manufacturing/assembly process, automation integration, connectivity or IoT module addition, or precision manufacturing for medical applications.
Tackle technical uncertainty — for example: “Can this new manufacturing process maintain required tolerances and biocompatibility at scale?”, “Will the automated assembly system reliably integrate sensors/data modules without defect rates exceeding thresholds?”, “Can the IoT‑enabled device maintain cybersecurity, data integrity and modular connectivity?”
Use a process of experimentation — pilot equipment/prototype runs, tooling design iterations, automation benchmarking, side‑by‑side manufacturing process comparisons, yield/defect reduction trials.
Be technological in nature, grounded in manufacturing engineering, automation/robotics, mechanical/electrical engineering, materials science, connectivity/IoT engineering or precision instrumentation.

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Qualified Research Expenses (QREs)

Expense Type

Examples in Medical Equipment Manufacturing

Eligibility Notes

Wages

Manufacturing/process engineers, automation/robotics engineers, firmware/software engineers, test/reliability engineers

Direct and support roles qualify

Supplies

Prototype components, tooling, sensors/modules, test fixtures/automation, consumables for trials

Materials consumed in experimentation

Software / Cloud

Simulation tools, digital twin modelling, firmware development platforms, analytics for predictive maintenance

Eligible when used for qualified research

Contract Research

External test labs, automation vendor partners, connectivity/IoT development firms

Subcontracted research qualifies

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Roles commonly involved in qualifying activities

Manufacturing, automation/robotics engineers
Mechanical, electrical, firmware/software engineers
Materials scientists, test/reliability engineers
Connectivity/IoT specialists, data/analytics engineers
Project managers overseeing prototype/manufacturing trials

What does not qualify

Routine mass production of equipment under existing designs without innovation or trials
Standard assembly, packaging or logistics with no documented experimentation
Administrative, marketing or business‑support functions
Purchase/installation of standard manufacturing equipment not tied to a documented R&D program

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Compliance and Documentation

§174 Update

Following the One Big Beautiful Bill Act (OBBBA) signed July 4, 2025, §174 now allows immediate expensing of domestic research expenses for tax years beginning on or after January 1, 2025. Taxpayers may also elect optional amortization under new §174A. Foreign research expenses must still be amortized over 15 years. This is separate from the §41 credit but impacts overall tax planning.

Document thoroughly:

Prototype build logs, tooling design files, automation workflow trials, yield/defect comparison data
Firmware/software version logs, simulation/modelling results, connectivity/IoT performance data
Pilot manufacturing run records, automation integration trial logs, side‑by‑side benchmarking data
Employee time logs tied to R&D projects, supply usage tied to experiments, iteration history including failed designs Maintaining this documentation supports audit readiness and the four‑part test.

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Frequently Asked Questions

Do medical equipment manufacturers qualify for the R&D Tax Credits?

Yes — when they engage in new equipment design, manufacturing process innovation, automation/robotics integration, firmware/connectivity development, or materials/process trials rather than simple routine production.

What expenses can be claimed?

Wages of engineers and scientists doing R&D work, prototype and tooling materials, software/simulation/analytics tools, contract research or automation vendor costs.

Which activities do not qualify?

Routine production under existing design, standard assembly without innovation, general business operations or sales, machine purchases not part of a trial or experiment.

How should manufacturing teams document research?

Keep records of prototype iterations and automation trials, tooling design versions, pilot runs and benchmarking data, employee time by R&D task, supply usage tied to experimentation.