Semiconductor companies are being given large sums of money and tax credits by the federal government and state and local governments to expand semiconductor production in the United States. 

The US share of global semiconductor manufacturing capacity is now 8%, with 83% of total capacity in South Korea, Taiwan, China and Japan.

The largest single source of funding is the CHIPS and Science Act of 2022 administered by the CHIPS Program Office at the US Department of Commerce. Many state and local governments are also offering incentives in an effort to attract semiconductor jobs.

CHIPS Act

The CHIPS Act provides Commerce with $52.7 billion over five years to use in ways that boost semiconductor manufacturing and research in the United States. Commerce has established two offices responsible for implementing the law: the CHIPS Program Office with authority to hand out $39 billion in incentives to encourage investment in semiconductor manufacturing facilities and equipment in the US and the CHIPS Research and Development Office with authority to spend $11 billion on domestic research and development.

The CHIPS Program Office has issued two funding opportunities asking for applications for projects to build, expand or modernize "fabs" -- factories that make leading-edge, current-generation and mature-node semiconductors -- and for other projects to mine or process semiconductor materials or manufacture equipment that can be used to make semiconductors.

The funding can take different forms. Commerce has authority to make direct funding awards that require some sharing of returns with the government, loans and loan guarantees and to offer more than one such type of support for individual projects.

There is no fixed amount for how much a project can receive. The level of support varies based on the specific characteristics of individual projects.  

Most CHIPS direct funding awards range between 5% and 15% of project capital expenditures. This range may be higher if a project is not eligible for additional investment tax credits that are worth 25% of the project cost. For example, such tax credits cannot be claimed on projects to mine or process semiconductor materials.  

CHIPS loans and loan guarantees are supposed to provide debt financing that is not otherwise available on comparable terms in the private market. The interest rate on a CHIPS loan will generally be based on the cost of funds to the Department of the Treasury for obligations of comparable maturity plus a portion of the spread over the market rate for commercial loans or debt of similar risk, tenor and terms.

Recent Awards

The CHIPS Program Office has already announced $33.7 billion in grant awards and up to $28.8 billion in loans to 20 companies for 32 projects in 20 states.  The individual awards range from several million to several billion dollars. Examples of some recent awards are listed below.

In January 2024, it awarded Microchip up to $162 million in federal incentives to support onshoring the company’s semiconductor supply chain by expanding existing fabs in Colorado and Oregon.

In March 2024, Intel announced it will receive up to $8.5 billion in CHIPS direct funding to expand chipmaking capacity at its fabs in Arizona, New Mexico, Oregon and Ohio.

In April 2024, there were three public announcements for projects that are expected to receive a combined $19 billion in direct funding and $5 billion in loans. TSMC expects up to $6.6 billion in direct funding and $5 billion in loans to build a third leading-edge fab in Arizona. Samsung expects up to $6.4 billion in direct funding to support a semiconductor cluster in Texas for two new leading-edge logic fabs, a research and development facility, an advanced packing facility and expansion of an existing fab. Micron expects up to $6.14 billion in direct funding to support construction of two leading-edge dynamic random-access memory fabs in New York.

In June 2024, Commerce announced plans to provide Rocket Lab with up to $23.9 million in direct funding to support modernization and expansion of a fab in New Mexico that produces compound semiconductors that power spacecraft and satellites.

In July 2024, Commerce announced up to $400 million in direct funding to GlobalWafers to support construction of new fabs to make 300mm silicon wafers (the first in the US) in Texas and Missouri.

In August 2024, Commerce said it will provide Texas Instruments with up to $1.6 billion in direct funding to support construction of new fabs in Texas and Utah to make current-generation and mature-node chips and to provide HP up to $50 million in direct funding to expand and modernize an existing research and development and manufacturing facility.

Additional Funding Programs

The CHIPS Act also gave money to other federal agencies to support a domestic supply chain needed for semiconductor manufacturing. 

The Department of Defense has $2 billion to implement the "Microelectronics Commons," a national network for onshore, microelectronics hardware prototyping, lab-to-fab transition of semiconductor technologies and semiconductor workforce training.

The Department of State, in coordination with the US Agency for International Development, the Export-Import Bank, and the US International Development Finance Corporation, has $500 million to support international information and communications technology security and semiconductor supply chain activities, including supporting development and adoption of secure and trusted telecommunications technologies, semiconductors and other emerging technologies.

The National Science Foundation has $200 million to use over five years to accelerate development of a domestic semiconductor workforce.

The National Telecommunications and Information Administration, which is part of Commerce, is administering a $1.5 billion program to promote US competitiveness in telecommunications technologies.   

Investment Tax Credit

Manufacturers of semiconductors or equipment used to make semiconductors can claim a tax credit for 25% of the cost of new manufacturing facilities.  The tax credit is in section 48D of the US tax code. It is refundable: the IRS will pay the amount in cash to companies that would rather have direct cash payments instead of tax credits.

"Foreign entities of concern," meaning companies with ties to China, Russia, Iran or North Korea, are not eligible.  Neither are taxpayers that have entered into “significant transactions” to expand semiconductor manufacturing capacity by more than 5% in any of the four countries of concern. Significant transactions include investments of at least $100,000 to acquire ownership interests in an entity or the formation of a joint venture in one of the four named countries. Manufacturers must begin constructing facilities on which tax credits will be claimed -- either by performing "physical work of a significant nature" or by incurring at least 5% of the project cost -- before 2027.

The tax credit is subject to "recapture," meaning the unvested amount must be repaid to the US Treasury, if the company claiming the tax credit disposes of the project within five years after it is first put in service. The credit vests 20% each year. Thus, for example, if the owner sells the facility in year three, 60% of the credit amount is subject to recapture.

There are additional recapture risks.  For 10 years after the facility first starts operating, 100% of the credit amount will be recaptured if the project owner enters into a significant transaction to expand chip manufacturing in one of the four countries of concern.

There is an exception. If the facility owner ends or abandons the prohibited foreign transaction within 45 days after notice from the IRS, the 100% recapture rule does not apply. The owner bears the burden of proving the transaction has been abandoned.

State and Local Incentives

The CHIPS Act requires that applicants have an offer of financial support from a state or local incentive program where the project will be located.

Many state and local governments are offering additional incentives to attract semiconductor manufacturing and investment to their locations. These incentive programs take a variety of forms, such as grants, tax credits, workforce training rebates and direct investments.

The following are examples of state and local support.

New York has a Green CHIPS program that will provide up to $10 billion in economic incentives for the construction of environmentally-friendly semiconductor manufacturing facilities. Companies to whom the state has made awards include Micron Technology, which will receive $5.5 billion in tax credits, and Global Foundries, which will receive $575 million in tax credits and a $30 million infrastructure investment.

Texas has set up a Texas Semiconductor Innovation Fund or "TSIF." The Texas legislature appropriated $698.3 million to TSIF to be used to provide funding for semiconductor manufacturing and design projects.  TSIF funds will be administered through reimbursement-based grants, and applicants must demonstrate an “established presence” within the state to be considered.

Oregon Senate Bill 4 created an Oregon CHIPS Fund with $240 million for grants and loans to semiconductor companies. It also expanded the governor’s authority to override boundaries that restrict industrial development within the state.

Colorado is offering refundable tax credits to semiconductor companies.  Companies must apply for allocations. Tax credit awards will be made through the 2028-2029 fiscal year. No more than $15 million in tax credits can be claimed per fiscal year, and the total tax credits claimed may not exceed $75 million over the life of the program. Microchip, a semiconductor manufacturing company, applied for and expects to receive $22.6 million in tax credits to be claimed over eight years.

Pennsylvania is also offering a tax credit to semiconductor and biomedical companies in a bid to attract both types of companies to the state. Companies must apply. The tax credit is 2.5% of the initial capital investment, 100% of personal income tax withholding or $20,000 per job. A recipient may receive up to $10 million in tax credits per year and cannot use the tax credit to reduce its tax liability by more than 20%. The tax credit is non-refundable. There is currently no sunset date for the program, but no more than $100 million in tax credits may be awarded under the program.

Other states, such and Florida and Illinois, have taken a different approach by choosing to focus on workforce training and development.

Florida awards grants of up to $35 million to schools and colleges in Florida to create or expand semiconductor programs for students. Illinois passed a Manufacturing Illinois Chips for Real Opportunity Act that allows semiconductor manufacturing companies to claim tax credits for up to 25% of employee training costs or up to 40% of such costs when employees are recent Illinois graduates. These tax credits may be claimed immediately by retaining funds from tax withholding on wages.

Other states have provided funding or tax credits through general funding sources that, though not specifically allocated to semiconductor manufacturing, may be claimed for such purposes.

California, for example, has offered incentives to semiconductor companies in the form of a California Competes tax credit that makes up to $180 million a year available through 2028. Although this funding is not specifically earmarked for semiconductor manufacturing, in 2023 two semiconductor manufacturing companies received a combined $46 million in tax credits under the program.

Indiana has leveraged the state’s Economic Development Corporation, which supports general economic development, to provide hundreds of millions of dollars to South Korean semiconductor company SK Hynix. These incentives are performance-based and include $554.7 million in tax rebates, $80 million in conditional structured performance payments and $45 million in industrial development grants.

Ohio attracted Intel with $700 million in semiconductor infrastructure investment through its $2.5 billion All Ohio Future Fund, a general economic development fund for the state.

Cities and counties may also be a source of development incentives.

For example, New Albany, New York gave Intel a 30-year 100% property tax abatement for a new fab.  The local governments of Lafayette, Tippecanoe County, and West Lafayette in Indiana offered incentives to SK Hynix to supplement financing from the state.

A number of mayors have launched a task force to help implement the CHIPS Act.  The group will provide interested mayors with opportunities for collaboration and tools to develop effective strategies for chip industry development at the local level.