HR 4346: The CHIPS Act and Its Tax Credit
Discover how the CHIPS Act combines direct funding, broad research investment, and a major tax credit to bolster U.S. semiconductor capabilities.
The law officially titled H.R. 4346, more commonly known as the CHIPS and Science Act of 2022, was signed into law on August 9, 2022. The act has a dual purpose: to revitalize the domestic semiconductor industry and to propel American leadership in scientific and technological innovation. This legislation is designed to address vulnerabilities in critical supply chains and enhance the nation’s competitive posture. By encouraging domestic production and research, the act aims to create a more resilient technological ecosystem and secure long-term economic prosperity.
Semiconductor Manufacturing and Supply Chain Incentives
The CHIPS and Science Act allocates approximately $52.7 billion over five years through the CHIPS for America Fund to stimulate the American semiconductor sector. The primary goal is to reduce the nation’s dependence on foreign semiconductor manufacturing and mitigate supply chain risks. These incentives are designed to attract private investment for the construction and expansion of fabrication plants, known as “fabs,” on U.S. soil.
A portion of the fund, about $39 billion, is designated for financial assistance to companies building or expanding these manufacturing facilities. This support is administered by the Department of Commerce and can take the form of loans, loan guarantees, or other agreements. The objective is to lower the capital barrier for advanced semiconductor production, encouraging firms to locate these operations within the United States.
The act also dedicates about $13 billion to semiconductor-specific research, development, and workforce training. This includes funding for the National Semiconductor Technology Center, a hub for public-private research. Additionally, the Public Wireless Supply Chain Innovation Fund was established, which is aimed at promoting open and interoperable wireless network technologies.
Advancing US Scientific Research and Innovation
Separate from semiconductor-specific funding, the CHIPS and Science Act authorizes approximately $170 billion over five years for the nation’s scientific research infrastructure. This funding is directed toward federal agencies to foster long-term innovation across numerous disciplines and maintain the U.S. position in science and technology.
The National Science Foundation (NSF) is a primary beneficiary, with authorizations to support everything from basic research to STEM education. The act also establishes a new Directorate for Technology, Innovation, and Partnerships within the NSF. This directorate is tasked with translating research breakthroughs into practical applications and commercial ventures.
The Department of Energy (DOE) Office of Science and the National Institute of Standards and Technology (NIST) also receive authorizations to upgrade their research facilities and expand their programs. Another initiative is the creation of regional technology and innovation hubs. This program seeks to distribute research and development activities geographically, fostering economic growth in areas beyond traditional tech centers.
Strategic Guardrails and National Security Provisions
The financial incentives provided by the CHIPS Act are accompanied by strict conditions, or “guardrails,” designed to protect national security interests. Companies that accept funding must agree to limitations on their future investments and operations, particularly concerning countries deemed a security risk.
The most prominent restriction prohibits recipients from making new investments in advanced semiconductor manufacturing in “foreign countries of concern” for a ten-year period. This prohibition is targeted at preventing the transfer of cutting-edge technology, though it provides some exceptions for manufacturing older, “legacy” semiconductors to serve local markets.
To enforce these provisions, companies must notify the Department of Commerce of any planned, relevant transactions in designated countries for review. If a company is found to have violated the terms of its agreement, the government has the authority to “claw back” the full amount of the federal award it received. This enforcement mechanism creates a strong disincentive for non-compliance.
The Advanced Manufacturing Investment Tax Credit
A central element of the CHIPS Act’s financial incentives is the Advanced Manufacturing Investment Credit. This tax provision is a distinct avenue of federal support for companies investing in the domestic semiconductor industry.
The credit is valued at 25% of a taxpayer’s qualified investment in an advanced manufacturing facility. A “qualified investment” includes the cost of tangible property, such as buildings and equipment, integral to manufacturing semiconductors or the equipment used to produce them. To be eligible, the construction of the facility must begin before January 1, 2027, and the property must be placed in service by the taxpayer.
A feature of this tax credit is the “elective payment,” or “direct pay,” option. This allows an eligible taxpayer to treat the credit’s full value as a direct payment from the government, offering immediate liquidity regardless of tax liability. Taxpayers claim the credit using IRS Form 3800, General Business Credit, with Form 3468, Investment Credit.