The CHIPS Act Explained: Funding, Credits, and Guardrails

The CHIPS Act, explained in one line, is a 2022 federal law that put $52.7 billion behind rebuilding semiconductor manufacturing in the United States, paired with a tax credit worth up to 35 percent of what companies invest in new chip factories. Signed as Public Law 117-167 on August 9, 2022, it combines direct grants, loans, a manufacturing investment credit, and research funding to reduce American dependence on foreign chip suppliers. By early 2026, most of the manufacturing money has been committed to specific projects, and factory construction is underway across the country.

Where the $52.7 Billion Goes

The law splits its money into two pools. The CHIPS for America Fund holds $50 billion for civilian semiconductor work, and the CHIPS for America Defense Fund holds $2 billion for military-grade chip development.¹

Inside the civilian $50 billion, $39 billion pays for direct manufacturing incentives: grants to build, expand, or modernize chip fabrication plants, assembly and testing facilities, and advanced packaging operations. The other $11 billion supports Commerce Department research programs on next-generation chip design and manufacturing techniques.¹

The $2 billion defense allocation funds the Microelectronics Commons, a national prototyping network run by the Department of Defense in coordination with Commerce to keep military systems supplied with secure, domestically produced chips.²

The Advanced Manufacturing Investment Credit

Alongside the grant program, the law created a tax incentive under Section 48D of the Internal Revenue Code. For property placed in service between 2023 and 2025, the credit equals 25 percent of qualified investment in an advanced manufacturing facility. For property placed in service after December 31, 2025, that rate jumps to 35 percent.³

Qualified property includes the factory building itself (excluding office and administrative space), the specialized manufacturing equipment inside, and any other tangible depreciable property integral to semiconductor production. Both new construction and equipment whose first use begins with the taxpayer qualify.⁴

There is a hard deadline in the statute. The credit does not apply to property whose construction begins after December 31, 2026.³ Companies still planning new facilities need to break ground or start physical work of a significant nature before the end of 2026, or the tax benefit is off the table entirely.

The credit runs independently from the grant program. A company can take both, but the credit basis has to be reduced by any grant amount received for the same property. On a multi-billion-dollar fab, the after-reduction tax savings are still substantial.

Who Qualifies for a Grant

The statute uses the term “covered entity” for organizations that can receive federal financial assistance. In practice that covers private companies, nonprofits, and consortia capable of building or running semiconductor operations. The eligibility bar is high.

An applicant has to show all of the following:⁵

A concrete plan to build, expand, or modernize a facility for semiconductor fabrication, assembly, testing, packaging, or research.
Training and education benefits for employees, plus programs to expand employment opportunities for economically disadvantaged workers.
Secured commitments from regional educational institutions to provide training and job placement.
An executable plan to keep the facility operating without further federal manufacturing subsidies after the initial award.
A description of what the facility will produce and who will buy the output.
A plan to identify and address risks in the company’s semiconductor supply chain, including geographic concentration.

The Commerce Department also opened a separate track for smaller supply chain projects, aimed at companies with capital investments below $300 million that make semiconductor materials or manufacturing equipment. That track uses a two-phase application: a concept plan first, then a full application for the strongest proposals.⁶

Labor and Childcare Requirements

Construction paid for through CHIPS awards falls under Davis-Bacon prevailing wage rules. Contractors and subcontractors have to pay laborers at least the locally prevailing wage for similar construction work, and on contracts over $100,000, overtime kicks in at one-and-a-half times the regular rate beyond 40 hours in a workweek.⁷

When a project mixes categories of construction, the contract must incorporate the correct wage determination for each category whose cost exceeds either $2.5 million or 20 percent of total project costs.⁷

Companies applying for $150 million or more in CHIPS grants have to submit plans for providing childcare to construction and manufacturing workers. It’s an unusual requirement for an industrial subsidy, but semiconductor fabs run around the clock and recruiting struggles track closely with local childcare availability. Every applicant, regardless of award size, also has to demonstrate commitments to expanding employment for economically disadvantaged workers.⁵

National Security Guardrails

The restrictions on what recipients can do overseas are where the law shows its teeth. Any company that accepts federal money agrees to a ten-year prohibition on significantly expanding semiconductor manufacturing in foreign countries of concern.⁸ Those countries include China, Russia, North Korea, and Iran, plus any other nation the Commerce Secretary designates as a foreign adversary.

The Expansion Clawback

“Material expansion” has a precise definition: increasing a facility’s production capacity by more than five percent, through added cleanroom space, new equipment, or any combination that cumulatively crosses that threshold during the ten-year period. Any investment of $100,000 or more in semiconductor manufacturing capacity in a country of concern counts as a “significant transaction” under these rules.⁸

The penalty for a violation is full repayment. Commerce can recover the entire federal award, not a prorated share, and the amount becomes a debt owed to the United States. The Secretary has discretion to reduce or waive recovery when a company enters and complies with a mitigation agreement, but that’s the exception.⁸

The Technology Clawback

A separate rule covers intellectual property. Recipients cannot engage in joint research or technology licensing with entities in countries of concern when the work involves technology raising national security concerns. That reaches collaborative chip design, shared development of advanced logic or memory technology, and licensing agreements that could transfer sensitive manufacturing knowledge abroad.⁹

If a related entity, meaning an affiliate or subsidiary rather than the recipient itself, engages in prohibited research or licensing, Commerce can still act, from requiring a mitigation agreement up to recovering the full award.⁸

The Legacy Chip Exception

Not all overseas production triggers the guardrails. Older-generation chips get carved out. For fabrication, a legacy chip is a digital or analog logic chip at the 28-nanometer node or older, DRAM memory with a half-pitch greater than 18 nanometers, or NAND flash with fewer than 128 layers.⁸ Companies can maintain and modestly expand legacy production overseas without triggering the clawback, which matters because many existing factories in China produce these older chips for automotive, industrial, and consumer applications.

The exception has limits. Any chip using a post-planar transistor architecture (FinFET or gate-all-around designs) or advanced three-dimensional packaging is excluded from the legacy definition regardless of node size. Chips deemed critical to national security are never treated as legacy, even if they meet the technical thresholds.⁸

Where the Money Has Gone So Far

Commerce has moved the manufacturing money out reasonably quickly. Intel received the largest single direct award, up to $7.86 billion, along with a separate $3 billion contract for the Secure Enclave program serving national security needs.¹⁰ TSMC, Samsung, Micron, and GlobalFoundries are among the other major recipients.

As of early 2026, Commerce has announced over $33 billion in grant awards and up to $7.15 billion in loans across 35 companies and 52 projects, accounting for most of the $39 billion manufacturing pool. Disbursements are tied to construction milestones rather than paid upfront, so awarded money and delivered money are not the same figure.

The 2025 change in administration brought some uncertainty into the program. Early that year Commerce established an “Investment Accelerator” office to oversee CHIPS implementation and renegotiate certain agreements. Companies with finalized awards have continued building, but applicants still in negotiation may see revised terms.

Research and Workforce Funding

The “Science” half of the law’s name funds a broader research push. The act authorized $81 billion for the National Science Foundation over fiscal years 2023 through 2027, which would roughly double the agency’s budget if Congress appropriated the full amount.¹¹ Actual appropriations have fallen well short of that authorization each year, which is common when Congress sets an ambitious ceiling and funds to a lower level.

The NSF money targets ten technology areas the law identifies as critical to national and economic security, including artificial intelligence, quantum information science, advanced communications, biotechnology, and advanced manufacturing. The Department of Energy and the National Institute of Standards and Technology also received funding for laboratory modernization and semiconductor standards work.

To spread the economic benefits beyond established tech corridors, the law created a Regional Technology and Innovation Hubs program. The Economic Development Administration designated 31 Tech Hubs and selected 12 consortia for initial implementation funding, deliberately including smaller cities and rural communities alongside larger metros.

Education funding runs through several channels: scholarships and research fellowships to grow the pipeline of engineering and science graduates, workforce training grants routed through community colleges and technical schools near planned fab sites, and the company-education partnerships required as a condition of receiving CHIPS manufacturing grants.⁵ A modern chip factory takes three to five years to build, and training the thousands of technicians who will run it takes about as long.

1
U.S. Senate Committee on Commerce, Science, & Transportation. CHIPS Act of 2022 Summary
2
National Institute of Standards and Technology. CHIPS for America Fact Sheet – Section: Department of Defense: CHIPS for America Defense Fund
3
Office of the Law Revision Counsel. 26 USC 48D – Advanced Manufacturing Investment Credit
4
Internal Revenue Service. Advanced Manufacturing Investment Credit
5
Office of the Law Revision Counsel. 15 USC 4652 – Semiconductor Incentives
6
U.S. Department of Commerce. Biden-Harris Administration Announces CHIPS for America Funding Opportunity to Strengthen Semiconductor Supply Chains
7
National Institute of Standards and Technology. Davis-Bacon and Related Acts and the CHIPS and Science Act Frequently Asked Questions
8
Federal Register. 15 CFR 231 – Preventing the Improper Use of CHIPS Act Funding
9
National Institute of Standards and Technology. Biden-Harris Administration Announces Final National Security Guardrails for CHIPS for America Incentives Program
10
Intel Newsroom. Intel, Biden-Harris Administration Finalize $7.86 Billion Funding
11
U.S. National Science Foundation. CHIPS and Science