STAR Act Proposes 25% Tax Credit for U.S. Chip Design Through 2036

The STAR Act of 2025 aims to supercharge the American tech industry by introducing a massive 25% tax credit for semiconductor design. While we already have incentives for building the actual factories (fabs), this bill targets the 'brains' of the operation—the engineering and intellectual property that happens before a single chip is manufactured. By amending Section 48D of the tax code, the bill allows companies to shave a quarter off their bill for design costs incurred right here in the U.S., covering everything from engineer wages to the specialized software and computer power needed to map out complex circuits.

The Blueprint for a 25% Discount

This isn't just a vague pat on the back for tech companies; it’s a specific financial engine. Under Section 2, the credit applies to 'qualified semiconductor design expenditures,' which includes 100% of wages paid to employees doing the actual design work or directly supervising it. If you’re a software engineer at a startup or a hardware designer at a major firm, this bill essentially makes your role more affordable for your employer to keep stateside. It also covers 'contract design expenses,' meaning if a small business hires an outside firm to design a custom chip for a new medical device or a smart appliance, they can claim that full cost toward the credit. The bill is also startup-friendly: even if a company hasn't sold a single product yet, they can claim these credits as long as their primary goal is eventually using those designs in their future business.

Innovation vs. Imitation

To make sure companies aren't just gaming the system, the bill includes a strict 'process of experimentation' requirement. To qualify, the work must be aimed at improving performance, reliability, or quality. Section 2 explicitly disqualifies 'style, taste, or cosmetic' changes—so you can’t get a tax break for making a chip look cooler if it doesn't actually work better. It also blocks credits for simply reverse-engineering or duplicating someone else’s existing product. This creates a clear boundary: the government wants to fund the next breakthrough in processing power or energy efficiency, not just routine quality control or marketing studies. For a local tech hub or a specialized engineering firm, this means the focus stays on high-level R&D rather than basic maintenance.

The Fine Print and the Clock

There are a few logistical hurdles to keep in mind. First, you can’t 'double dip.' If a company takes this new 25% STAR Act credit, they cannot claim those same expenses under the traditional Research & Development credit (Section 41). It’s an either-or situation, requiring accountants to do some serious math to see which path saves more money. Additionally, the clock is ticking; the bill sets a firm expiration date of December 31, 2036. This gives the industry a decade-long runway to move design operations back to the U.S., but it also means the benefits aren't permanent. For the average person, this could mean more high-paying tech jobs in local communities and a more stable supply chain for the gadgets we rely on, provided companies can navigate the medium-level complexity of these new IRS definitions.