The CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act is designed to develop onshore domestic manufacturing of semiconductors critical to US competitiveness and national security. This legislation creates substantial financial incentives, including the $50 billion CHIPS for America Fund and a 25% investment tax credit, to encourage investments in semiconductor facilities and equipment in the US.
CHIPS for America Fund
The US Commerce Department will administer the CHIPS for America Fund, which includes:
- $39 billion for an incentive program to develop domestic manufacturing capability
- $11 billion for R&D and workforce development
Funds will be allocated over 5 years, through FY26.
The $39 billion in manufacturing incentive funds are intended to provide financial assistance to build, expand, or modernize domestic US facilities and equipment for semiconductor fabrication, assembly, testing, advanced packaging, production, or R&D. $2 billion must be used for “legacy chip production to advance economic and national security interests,” which primarily means chips for the auto and defense industries.
The Department of Commerce is embarking on program design, according to the CHIPS.gov website. The program will require applications and agreements with recipients. The Secretary is given authority to determine the amount and type of financial assistance to be provided for each agreement. Federal investments in any individual project may not exceed $3 billion, except in specified circumstances. The legislation stipulates that up to $6 billion may be used for direct loans and loan guarantees. Recipients may not use funds for stock buybacks or dividend payments. Applicants will need to demonstrate commitments to worker and community investments.
We will examine these and other program requirements for the CHIPS for America Fund incentives in more detail in an upcoming article.
Most of the remaining $11 billion in the CHIPS for America Fund will be directed to the National Semiconductor Technology Center and National Advanced Packaging Manufacturing Program. Some of these funds will also be used for other R&D and workforce development programs.
Investment Tax Credit
The CHIPS Act also establishes a hefty 25% tax credit for investments in semiconductor manufacturing. It covers manufacturing equipment, construction of manufacturing facilities, and the manufacture of specialized tooling equipment. The credit will be available for property placed in service after December 31, 2022, and for construction that begins before January 1, 2027. Taxpayers may elect to treat the credit as a payment against tax (“direct pay”).* Taxpayers may be required to provide information or registration to prevent fraud or improper or excessive payments, and some penalty and recapture terms are outlined. It does not appear that this tax credit will affect any other refundable tax credits or other “certain elective payments made to taxpayers.”
COMING UP NEXT: How will the CHIPS Act incentives work?
*Source: CHIPS and Science Act of 2022 Section-by-Section
** Photo Credit: Laura Ockel, Unsplash